An employee is leaving after 4 years and 8 months. Is gratuity payable, how is it calculated, and is it taxable?

Section 4 of the Payment of Gratuity Act requires five years of continuous service, but section 2A defines a year of continuous service as 240 working days (190 for establishments working under six days a week). The Madras High Court in Mettur Beardsell held that an employee who has completed 240 days in the fifth year has completed five years, and several High Courts and Controlling Authorities follow it. At four years and eight months he has comfortably crossed 240 days of the fifth year, so refusing it invites a claim before the Controlling Authority that you would likely lose, with interest.

Amount: 15 days' wages for every completed year or part exceeding six months, on last drawn basic plus DA: ₹60,000 × 15 ÷ 26 × 5 = ₹1,73,077. Pay within 30 days of it becoming due; after that simple interest applies.

Tax: for a private-sector employee covered by the Act, gratuity is exempt under section 10(10) up to the least of the amount computed by this formula, the actual amount, and ₹20 lakh (a lifetime limit across employers). ₹1.73 lakh is fully exempt; show it in his final settlement and Form 16 as exempt income, no TDS.

Note for the future: under the Code on Social Security, in force since 21 November 2025, fixed-term employees earn gratuity after one year of service, and the wider definition of wages increases the base.