Gratuity Act Covered vs Non-Covered Employer
Employers **covered under the Gratuity Act** use (Basic + DA) × 15 × years ÷ 26 with a **₹20 lakh** cap. **Non-covered** firms may pay half a month's salary per year of service—totals can differ materially.
Step by step
1. Confirm coverage
Ten or more employees in many cases triggers Act—verify locally.
2. Count continuous service
Five-year minimum for eligibility under Act rules.
3. Use last drawn salary
Basic plus dearness allowance basis—not full CTC.
Covered vs non-covered
Always read your appointment letter and HR policy.
- Act covered: 15/26 formula; ₹20L max; statutory rights.
- Non-covered: Contractual formula; negotiate on hire.
Use our calculators
Common mistakes
- Using CTC instead of basic+DA
- Ignoring broken service years
FAQ
Is gratuity taxable?
Exempt up to limits for qualifying employees—CPA rules apply.