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Gratuity calculation in Bangladesh sounds easy until someone resigns after 7 years and 8 months. Do you round up? Which rate applies? Does the payout attract tax? Get it wrong and you face a labour court complaint or a question from the NBR. This guide covers the legal rule, the formula, two worked examples, and the tax treatment, so your HR team can settle a final payment without guessing.
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Table of Contents
What gratuity means under the Bangladesh Labour Act 2006
Gratuity is a payment owed to a worker when employment ends. Section 2(10) sets it at no less than 30 days of the last wages received for each completed year of service, or for service beyond six months, rising to 45 days where service exceeds 10 years. It sits on top of any compensation or notice pay.
Who gets it
Two things decide eligibility.
First, continuous service. Section 2(10) does not name a minimum on its own. The five year threshold for resignation comes from Section 27 of the Act. If you want the details of notice, leave and termination rules around it, our Bangladesh labour law HR guide covers them.
Second, the type of exit. Resignation, retirement, discharge, termination and retrenchment all lead to a gratuity claim.
Dismissal for misconduct is the exception. An employer can withhold gratuity only for dismissal under Section 23(4)(b) and 23(4)(g). For every other exit, the money is owed.
Timing matters too. All dues, including gratuity, must be paid within 30 working days of the date employment ends.
The 30 day vs 45 day multiplier
The rate depends on total service.
| Completed service | Days of last wages per year |
|---|---|
| 5 years up to 10 years | 30 days |
| More than 10 years | 45 days |
Tier 1, 5 to 10 years. Pay 30 days of last drawn wages for each completed year.
Tier 2, more than 10 years. Pay 45 days. In practice most HR teams apply the 45 day rate to every completed year, not just the years after year 10. Have your lawyer confirm that reading for your policy.
How to treat part years
Under Section 2(10), a fraction of more than six months counts as a full year. Three months does not round up. Seven months does. thedailystar
Two edge cases will bite you if you ignore them:
- Exactly six months. The law says “more than” six months, so exactly six does not round up.
- 10 years and 4 months. That is “more than 10 years” but only 10 completed years. Pick a reading, write it into your policy, and apply it to everyone.
You may see a “240 working days” rule quoted on other sites. It is not in Section 2(10), so don’t use it for gratuity.
The formula, with two worked examples
Gratuity = (Last monthly wage ÷ 30) × 30 or 45 days × Completed years
One caution on the wage base. The Act says “wages received last,” and legal commentary in The Daily Star describes it as the latest basic wage. The statutory definition of wages in Section 2(45) is wider than basic pay. Ask your labour lawyer whether dearness or ad hoc components belong in your base. The examples below use basic pay.
Scenario A: resignation after 7 years and 8 months
- Last drawn basic: BDT 40,000
- Completed years: 7 years 8 months rounds up to 8
- Tier: 5 to 10 years, so 30 days
- Daily rate: 40,000 ÷ 30 = BDT 1,333.33
- Gratuity: 1,333.33 × 30 × 8 = BDT 320,000
Scenario B: senior manager retiring after 12 years and 3 months
- Last drawn basic: BDT 120,000
- Completed years: 12 years 3 months stays at 12
- Tier: more than 10 years, so 45 days
- Daily rate: 120,000 ÷ 30 = BDT 4,000
- Gratuity: 4,000 × 45 × 12 = BDT 2,160,000
These are sample figures, not real employee data.
Notice how much one number moves the result. A basic salary revised six months before exit changes the whole payout. That is why the last drawn figure needs a clean history, which is what salary increment management records. For the monthly pay math itself, see our guide to salary calculation in Bangladesh.
Tax impact and NBR trust fund rules under the Income Tax Act 2023
The exemption limit
Under the old Ordinance, gratuity up to BDT 2,50,00,000 (Tk 2.5 crore) was not taxable, provided the scheme was recognised by the NBR. The Income Tax Act 2023 carries exclusions in Part 1 of the Sixth Schedule. Limits change with each Finance Act, so check the current figure and paragraph on the NBR website before you advise anyone.
What “approved” requires
The employer must create a separate gratuity fund run by a board of trustees, with a trust deed, rules and the other documents the Schedule asks for. Benefits must be payable only in Bangladesh.
The fund gets its own break as well. Income from the fund’s investments and capital gains on its assets are exempt from income tax.
Unapproved funds and paying from operating cash
Paying gratuity straight from the company bank account is legal. It is also the expensive way to do it.
- For the employee, the payout is generally taxed as salary income, with no Tk 2.5 crore shield.
- For the employer, a book provision generally does not become a tax deduction until the cash leaves.
Employer deductions and employee TDS
Contributions to an approved fund are deductible for the employer. Refunds from the fund back to the employer count as income. On the payroll side, a payout from an unapproved source goes into the employee’s taxable salary for the year, and the withholding has to reflect that. Your deduction management setup should handle the tax line on a final settlement just like it does monthly.
Provisioning vs approved funded gratuity
| Factor | Book provision | Approved fund (irrevocable trust) |
|---|---|---|
| Cash backing | None, only a liability on the balance sheet | Cash and investments held by trustees |
| Employee tax on payout | Generally taxable as salary | Exempt up to the Schedule limit |
| Employer deduction | Generally when paid | When contributed |
| Tax on investment income | Normal business tax | Exempt inside the fund |
| If the business struggles | Employee is an unsecured creditor | Fund assets are ring fenced |
| Setup effort | None | NBR approval, trust deed, trustees, filings |
| Accounting | Defined benefit obligation under BAS 19 | Plan assets offset the obligation
|
A provision is fine for a ten person company. Once headcount and tenure grow, the employee tax exemption alone usually justifies a funded structure. My view: don’t wait for the first large payout to find that out.
Automating gratuity and final settlements with HRMS BD
Where spreadsheets fail
They fail in the same places every time:
- Someone rounds 7 years 6 months the wrong way.
- A basic pay revision from two years ago never reaches the “last drawn” cell.
- Leave encashment, notice pay and gratuity live in three different files.
- The 30 working day deadline passes because nobody owns the clock.
What HRMS BD does at exit
HRMS BD links the records a final settlement depends on. Payroll management holds the last drawn basic and every revision behind it. Attendance management supplies the service and absence history. The employee management system carries joining and separation dates. The system applies the right tier and the six month rule, adds statutory deductions, and produces one terminal settlement statement. PF and payslip closes out the provident fund side, so HR reviews a single screen instead of rebuilding the maths.
Want to see it on your own data? Get a quote and we will walk through a real separation case.
FAQ
How do I calculate gratuity in Bangladesh?
Divide the last monthly wage by 30, multiply by 30 or 45 days, then multiply by completed years. Part years over six months count as a year.
Is gratuity taxable in Bangladesh?
Gratuity from an NBR approved fund is exempt up to Tk 2.5 crore. Payouts from outside an approved fund are generally taxed as salary.
Do I get gratuity if I resign?
Yes, if you meet the service threshold in Section 27 of the Labour Act.
Can an employer withhold gratuity?
Only on dismissal for misconduct under Section 23(4)(b) and (g).
How fast must gratuity be paid?
Within 30 working days of the end of employment.
Sources: Bangladesh Labour Act 2006, Chapter I, The Daily Star, “Understanding the gratuity scheme”, bdlaws.minlaw.gov.bd, nbr.gov.bd. General information only, not legal or tax advice.