How much gratuity will you receive?

For employees covered by the Payment of Gratuity Act: Gratuity = (15/26) × (last drawn basic + DA) × years of service. For those not covered: Gratuity = (15/30) × (basic + DA) × years of service. The payout is capped at ₹20 lakh under the Act.

Gratuity is calculated as 15 days' salary for every completed year of service. Since a month has 26 working days (excluding weekly offs), 15 days' salary = 15/26 of monthly salary. This is the standard under the Payment of Gratuity Act.

You must complete 5 years of continuous service to be eligible for gratuity. If you resign or are terminated before 5 years, you generally forfeit gratuity — except in cases of death or disablement, where the 5-year requirement is waived.

If the final year has more than 6 months of service, it rounds up to a full year. If 6 months or less, it's ignored. For example: 7 years and 7 months counts as 8 years; 7 years and 5 months counts as 7 years.

Gratuity is exempt from tax up to ₹20 lakh in your lifetime, under Section 10(10) of the Income Tax Act. Amounts above ₹20 lakh are taxable at your slab rate. Government employees have no cap — their gratuity is fully exempt.

It's a lifetime limit across all employers, not per employer. If you claimed ₹5 lakh exemption when you left a previous job, only ₹15 lakh remains available for the rest of your life. Track your cumulative claims carefully.

Yes. Dearness allowance (DA) counts toward the qualifying salary for gratuity. If you receive DA as part of your salary structure, include it when computing your gratuity. Most private-sector employees don't have DA — in that case, use basic only.

Only commission paid as a percentage of turnover counts. Fixed commissions or one-time bonuses don't. This is a nuance many employees miss — check your salary structure and include qualifying commission if applicable.

Yes, provided you've completed at least 5 years of continuous service. Whether you resign, retire, or are terminated (for reasons other than misconduct), you're entitled to gratuity after 5 years. The exception is termination for proven misconduct.

If you die in service, gratuity is paid to your nominee regardless of whether you completed 5 years. The 5-year rule is waived. The same applies if you're permanently disabled due to an accident or disease.

Gratuity must be paid within 30 days of it becoming due. If your employer delays beyond 30 days, they owe interest at the government-specified rate. If they refuse, you can file a claim with the Controlling Authority under the Act.

The Payment of Gratuity Act applies to establishments with 10 or more employees. If your employer has fewer than 10 employees, they may not be legally bound by the Act — but many still pay gratuity as part of their employment terms.

Yes, gratuity is usually shown as a component of your CTC (typically 4.81% of basic salary). But it's only paid when you leave after 5 years. It's a deferred benefit, not part of your monthly take-home.

15/26 applies to employees covered by the Payment of Gratuity Act (employers with 10+ employees). 15/30 applies to those not covered. The 15/26 formula gives a higher per-year amount — 15 days' salary divided by 26 working days, rather than 30 calendar days.

Yes, if you've completed 5 years of service and were terminated for reasons other than proven misconduct. If you were terminated for misconduct (as defined under the Act), gratuity can be forfeited — partially or fully.

Yes. Gratuity is one part of your retirement corpus, alongside EPF, NPS, and personal investments. For a long-serving employee, gratuity can be ₹10–₹20 lakh. Include it when planning your post-retirement finances.

Not usually. Gratuity is paid at the end of continuous service with one employer. A transfer to a different company (even in the same group) is typically treated as a break in service, and gratuity is settled with the original employer.

Gratuity is a statutory liability, and it ranks above most other unsecured liabilities during liquidation. Employees have priority in receiving their gratuity dues. However, in practice, recovery can be difficult if the company has no assets. Register your claim with the liquidator promptly.

Amounts above the available ₹20 lakh lifetime exemption are added to your taxable income in the year of receipt and taxed at your slab rate. This can push you into a higher bracket, so plan the timing if possible.

The exempt portion doesn't affect your taxable income at all. The taxable portion (above the ₹20L exemption) is added to your income — which can push you into a higher slab in the year of receipt. Plan ahead if you expect a large taxable gratuity.

Yes. Gratuity is a statutory retirement benefit tied to continuous service, governed by the Payment of Gratuity Act. A bonus is a performance-linked payment, usually annual, and doesn't have the same legal framework or tax treatment.

Yes — but as a deferred, conditional benefit. You only get it after 5 years, and only if you leave. If you're planning FIRE or early retirement before 5 years at any one employer, gratuity may not be part of your plan. For traditional retirement planning, include it in your corpus projections.

The ₹20 lakh cap was raised from ₹10 lakh in 2018. It's indexed to inflation and may be revised in future budgets. For long-serving employees, the cap is increasingly binding — especially for senior employees with high basic salaries.

The Payment of Gratuity Act applies to employees, including those on fixed-term contracts, if they complete 5 years of continuous service. However, short-term contracts that don't reach 5 years don't qualify. Consult a labour lawyer if your situation is unusual.

Yes. Most employers allow you to nominate a beneficiary (usually a family member) to receive your gratuity if you die in service. The nomination form is typically part of your onboarding paperwork. Keep it updated after major life events.

Gratuity is calculated on your last drawn basic + DA, not your average over the years or your starting salary. A salary increase in your final year raises your gratuity meaningfully — even if it's small in absolute terms.

Your employer can only refuse gratuity for proven misconduct that caused loss or damage to the employer, and only to the extent of the loss. For normal resignation, retirement, or termination, gratuity is legally owed. If refused, file a claim with the Controlling Authority under the Act.

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