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Updated on 21st Aug 2025
In Bangladesh, gratuity is one of the most important employee benefits for employees. It not only protects employees’ money when they leave, but it also helps establish trust and loyalty between employers and workers. The Bangladesh Labour Act 2006 and its revisions control gratuity funds compliance in Bangladesh. To avoid disputes, every employer must follow these rules.
In this detailed guide, we will discuss the gratuity funds in Bangladesh, including what it is, who may get it, how to do the gratuity calculation, how to pay taxes on it, what employers have to do and so on. We will also try to respond to the most common queries that employees and businesses have concerning gratuity funds in Bangladesh.
A gratuity fund is a legal benefit that employers give to employees when they leave their jobs. It is a type of terminal benefit that is meant to reward people who have worked for a long time. Gratuity Fund is known as employee welfare fund which is formed for the welfare of their employees. A gratuity is wholly paid for by the employer, while a provident fund is paid for by both the employer and the employee. It is frequently paid when the employee quits, retires, is fired (under specific conditions), or dies.
Gratuity is a discretionary payment, paid to the employee by the employer upon successful completion of his employment at the company. Unless, it is a dismissal for misconduct or violation of company rules, the employer is liable for gratuity payment or compensation, whichever is higher, to the employee in all other terminations of employment; be it a retirement, voluntary termination, involuntary termination like redundancy, mutual termination, illness, disability or even on the death of the employee as stipulated in Bangladesh Labour Act 2006. If the company does not have a gratuity scheme set up, they would be responsible to pay compensation instead under the 2006 Act, which would be calculated in addition to any wage or salary payment, in lieu of notice attributable to termination of service of the employee.
The Bangladesh Labour Act 2006, with amendments made in 2013, 2018, and subsequently, regulates the gratuity system in Bangladesh.
• Rule for gratuity eligibility in Bangladesh: Employees must have worked for the company for at least one year without a break, to become eligible for gratuity.
• Timeline for payment: Legally employers are under obligation to pay gratuity within a reasonable amount of time after the termination of employment.
• Mandatory compliance: Businesses with a particular number of employees must set up a gratuity fund and keep records.
This legal structure makes sure that gratuity stays a statutory right rather than a discretionary advantage.
Not all employees are eligible for employees’ gratuity funds. The gratuity eligibility criteria are as follows:
• Minimum service: An employee must have to work for the same employer for at least a year uninterruptedly.
• Resignation: Employees are eligible for gratuity after resignation if they complete the minimum service.
• Retirement: Employees who retire after working for a long time automatically qualify.
• Termination: If the termination is not a consequence of misconduct, the employee qualifies for gratuity.
• Death: If the employee dies, the gratuity pass to the nominee or legal heirs.
If an employee is dismissed for proven misconduct or fraud, however, their gratuity may be forfeited gratuity.
To be eligible for either compensation or gratuity fund payments, the employee must have been in incessant service for more than a year. Section 2(10) of the Bangladesh Labour Act 2006, defined gratuity period as more than six months of continuous service would be considered one year, therefore, after completion of first year, a further six months of uninterrupted service would be considered as a full year. In other words, it could be said that that individual employee has completed two years of continuous service rather than a tenure of eighteen months.
There are two types of gratuity schemes in Bangladesh. They are: approved or registered gratuity funds, and unregistered gratuity funds. Under section 2(5A) of the Income Tax Ordinance 1984, registered gratuity fund denominates those gratuity schemes which have been registered with and approved by the Bangladesh National Revenue Board (NBR) pursuant to Part C of the 1st schedule of the Income Tax Ordinance 1984.
Income Tax Act 2023 has stipulated the requirements to be met for the gratuity fund to be recognised or registered and continue to be recognised. The following prerequisites and any other conditions specified by the National Board of Revenue should be followed by the Gratuity fund:
Pursuant to Income Tax Act 2023, a request for recognition of the gratuity fund must be in writing by the trustees of the fund to the National Board of Revenue, along with the following documents:
Documents required for setting up a Gratuity fund:
Under Labour Act 2006, the authority of the fund must conduct an annual gratuity funds audit which covers the income and expenditures. The annual financial audit for both the gratuity funds and the business itself, is very important for multiple reasons. For example, the audit assists the business to achieve its goal, prevents suspicious transactions, and increases its sustainability of the fund. Furthermore, the gratuity funds audit reinsures the tax exemption for both the employer and the employees.
Albeit, the gratuity funds were exempted from tax, the new laws under the Income Tax Act 2023, imposed a 30% (27.5%, if certain conditions are fulfilled) tax is imposed on the provident fund. However, in December 2023, the National Board of Revenue, the supreme authority on tax administration, reduced the rate to a flat 15% on all sorts of income generated by provident fund, gratuity fund, and pension funds. This new Act generated effusive reprimand regarding the lifting of tax exemption on the provident funds, gratuity funds and employees’ profit participation in the private sectors, albeit the government regulated provident funds are out of scope of the new Act. Section 166(1) of the Income Tax Act 2023 listed out the entities who must submit tax returns and section 166(2) listed out those who do not have to submit the tax returns.
Calculating gratuity in Bangladesh is simple, however it requires careful application:
The gratuity formula is:
Gratuity = Last Basic Salary × Number of Completed Years of Service
Example 1:
• Basic Salary = BDT 25,000.
• Numbers of completed years of service = 10
• Gratuity = 25,000 × 10 = BDT 250,000
Example 2:
The recently drawn basic salary must be used as the basis by the employers. The gratuity calculation does not include house rent, allowances, or bonuses. The amount of gratuity an employee receives is directly proportional to the duration of service he completes at that particular company. Section 2(10) of the Bangladesh Labour Act 2006 specified the gratuity for each year of service is equal to 30 days’ salary calculated based on the last payment of salary. However, if the employee is employed for 10 years, the calculation would be equivalent to 45 days’ salary for each year he has worked for the company. In both the cases, whether he has worked for 10 years or not, the calculation is based on the sum of the last basic salary he drew and the dearness allowance. Furthermore, if more than six months have passed after completing the first year, it should be considered a full year. Under section 14 of the Bangladesh Labour Act 2006, the calculation of one year and six months should follow the rule of 240 working days in a year and 120 days in six months respectively in the previous 12 months.
The Labour Law Act 2006 and The Income Tax Act 2023 provides guidelines regarding taxation of gratuity.
Gratuity is not just money for employees, it is a long-term service reward which gives financial security.
The law makes it explicit what employers in Bangladesh should do:
It may lead to labour disputes, penalties, and reputational damage as a result of failure to comply.
Though gratuity, provident fund, and pension all are employee benefits, however, they all are significantly different.
|
Feature |
Gratuity Fund |
Provident Fund |
Pension |
|
Contribution |
Only for employers |
Employer and Employee |
Government or Employer |
|
Payment |
One-time payment |
Withdrawal in one lump payment or every month |
Monthly after retirement |
|
Eligibility |
Minimum 1 year uninterrupted service |
Both short and long period of service |
Government employment, some corporations |
|
Tax Benefit |
Partial exemption |
Exemption under NBR standards |
Exemption up to a certain amount |
In Bangladesh, there are many gratuity issues and companies face trouble to overcome the following gratuity compliance challenges:
Employers should follow best practices to minimise their risks:
In Bangladesh, the gratuity fund is not only a legal requirement; it is also important for the well-being of employees and the reputation of the firm. When employers handle gratuities properly, their employees are more loyal, there are fewer disagreements, and they follow labor regulations more closely.
Gratuity is a safety net for employees in case they retire, resign, or die. Both employers and employees can make smart choices when they know the rules, how to do the calculation, and what the tax consequences are. If you own a business in Bangladesh, you have to set up a legal gratuity fund. It’s not an option; it’s a must for long-term growth and survival.
Please find below the 15 most commonly asked questions and their answers about Gratuity in Bangladesh:A
Gratuity is a one-time payment that businesses must make to employees after their resignation, retirement, or termination, based on how long they have worked for the company.
An employee who has worked for the same company for at least a year uninterruptedly.
Gratuity = Last Basic Salary × Years of service.
Yes, according to the Bangladesh Labour Act, employees who satisfy the criteria for eligibility, must get gratuity.
Yes, however if you pay through a recognized gratuity fund, tax exemptions shall apply.
Gratuity Fund is fully contributed by the employer only, whereas in the provident fund, both employer and employee contribute regularly.
Employees who resign after working the minimum amount of time, without a break, are eligible for gratuity.
Yes, if there is proof of misconduct, fraud, or termination for disciplinary reasons.
It must be paid within a reasonable amount of time after the employee’s service ends.
The last basic salary is the only one considered for the calculation of gratuity.
The National Board of Revenue (NBR) has approved a gratuity fund that gives tax breaks.
Yes, all firms that are registered with the labor department must follow the rules of gratuities.
Yes, the nominee or legal heirs get the gratuity.
It depends on the restrictions set by the NBR, which are normally BDT 10 lacs or higher for recognized funds.
By keeping accurate records, setting up a gratuity fund, and making sure payments are made on time.