Frequently Asked Questions
What is the minimum service period for gratuity? ＋
Under the Payment of Gratuity Act, an employee must complete at least 5 years of continuous service to be eligible for gratuity. However, in case of death or permanent disability, gratuity is paid regardless of years of service.
How is gratuity calculated in India? ＋
Gratuity = (Last Basic + DA) × 15 × Years of Service ÷ 26. The "26" represents working days in a month (excluding Sundays). For a month with more than 6 months served, the year is rounded up. Maximum gratuity payable is ₹20 lakh.
Is gratuity taxable? ＋
Gratuity received from a government employer is fully tax-free. For private sector employees covered under the Gratuity Act, gratuity up to ₹20 lakh is tax-free. Any amount above ₹20 lakh is taxable as salary income in the year of receipt.
When must the employer pay gratuity? ＋
Gratuity must be paid within 30 days of it becoming due (resignation, retirement, death). If delayed, the employer is liable to pay simple interest at the rate applicable. The employee or nominee must apply in Form I to claim gratuity.
Can an employer pay more than the calculated gratuity? ＋
Yes. The Payment of Gratuity Act specifies the minimum amount. Employers can pay more as ex-gratia. Many companies have their own gratuity policies that are more generous than the statutory minimum.