Payment of Gratuity in India – Eligibility, formula, taxability + calculator
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Payment of Gratuity in India – Eligibility, formula, taxability + calculator

Hello and Welcome. In this post, we will discuss all about the payment of Gratuity in India.

We will cover the following topics:

What is gratuity?

An organization gives gratuity as a kind of monetary / loyalty benefit to its employees who have worked in the same organization for 5 or more years.

As per the Payment of Gratuity Act (1972), the organisation should provide this mandatory benefit to give recognition for employee’s years of service.

This gratuity benefit is generally for the employees who leave the organization, and it is mostly given at the time of his/her retirement. It can also be paid before under certain conditions.

The employer pays the full amount and no amount is deducted from the employee’s salary for gratuity.

Gratuity and its applicability

As per the Payment of Gratuity Act, the scheme for the payment of gratuity is applicable for:

  • Factories
  • mines
  • oil fields
  • plantations
  • ports
  • railway companies
  • shops or other establishments.

In general, an employee is covered under the Act if the organisation has at least 10 employees at any given time in the preceding 12 months.

And once an organisation comes under the Act, it will always remain covered even if the number of employees comes below 10.

Eligibility for Gratuity in India

An employee is eligible to get gratuity under the following circumstances:

  • An employee retires after completing 5 years of continuous service with the same organization.
  • If an employee resigns after 5 years of working with the same organization.
  • Temporary staffs, contract workers are also eligible if they are considered as employees in the company.
  • When an employee is transferred overseas on an assignment.
  • An employee who passes away / suffers disability due to illness or an accident.

Gratuity eligibility in India

Gratuity formula

Gratuity amount mainly depends on two factors:

  • Last drawn salary of the employee
  • Years of service of the employee

In India, the formula for calculating gratuity is given below:

Gratuity = Last Drawn Salary × 15/26 × No. of Years of Service

Example: Imagine that you worked with company A for 15 years. Your last drawn basic salary along with dearness allowance was Rs 30,000. Hence, the amount of gratuity will be = 15*30000*15 / 26 = Rs 2,59,615.

You can find the link to our Gratuity calculator here.

Notes:

  • The ratio 15 / 26 represents 15 days out of 26 working days in a month i.e., An average of 30 days reduced by 4 Sundays is considered for calculation.
  • Last drawn salary = Basic Salary + Dearness Allowance i.e., Basic + DA. Here we do not consider gross salary or net salary.
  • So, years of service are rounded to the nearest full year. For e.g., If the employee has a total service of 20 years, 10 months and 25 days, then you will receive the gratuity for 21 years.
  • If an employee has a total service of 20 years, 1 month and 25 days, then the no. of years will be 20 years.
  • The amount of gratuity cannot exceed Rs. 20 lakhs. If it exceeds then it will come under as ex-gratia.

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Gratuity payment

The employer will have to pay the gratuity amount within 30 days from the date it is billed to the employee.

If not he needs to pay simple interest on it starting from the actual date of payment. The rate will not be more than the government-stipulated rate.

According to the payee’s desire, it can be paid in cash or by DD or check to the eligible employee, nominee, or legal heir.

Is Gratuity Taxable?

Yes. If the Gratuity amount exceeds Rs. 20 Lakh then it is taxable. The taxable amount will be added to the total income under the “others” category. So the tax is calculated based on the income tax slab rate.

For e.g., If a person gets the gratuity of Rs. 15,25,742, then this amount is not taxable.

If a person gets the gratuity of Rs. 25,25,742, then, the exemption will only be for Rs. 20 and Rs. 5,25,742 is taxable.

Forfeiture

The conditions that make an employee ineligible of his/her gratuity amount:

  • For his / her lawless or disorderly conduct or any other act of violence on his or her part.
  • For any involvement in any offensive act during his/her employment period.

This ends our post on Gratuity in India. Also, if you have any doubts or queries kindly drop them in the comment section below.

Related:

You can also see how it works in Saral Paypack click on the link below:

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Calculate gratuity, leave encashment and generate full and final settlement on employee leaving with Saral PayPack.

Check out more features of Saral PayPack Payroll software.

102 Comments

  • Thank you so much,
    I have completed my 4yrs 11months 10days service in the same organization.
    Am I eligible for Gratuity.
    Regards,
    Ramya.P,

    • Yes
      If in the fifth year your working days are more than 240 days than you are eligible for the gratuity.

    • yes…

    • Yes you become eligible for gratuity after completing 04 yrs 240 days of continues service. You shall be paid gratuity for 05 yrs.

      • If the employer is not clearing F&F even after 6 months of detachment and unofficial information is that they have not calculated Gratuity for 4 years and 11 months completion, what are my rights of claim for entire sum.

        • You can ask your HR to consider for Gratuity. If not, you can approach labor court

    • My joining date in a private limited company in India was 18th May 2014, if my last working day in the same company is going to be 1st Dec’21 will I be eligible for gratuity for 7 years or 8 years, kindly advice.

    • My joining date in a private limited company in India was 18th May 2014, if my last working day in the same company is going to be 1st Dec’21 will I be eligible for gratuity for 7 years or 8 years, kindly advice.

  • If employee resign from onsite with last drawn onsite ($/£) with payroll transferred out of india, what is last drawn salary ?

    Is that foreign currency or the last drawn older basic

    • I’m also looking for a details for this query. How is gratuity calculated in case the last drawn salary is in foreign currency.

  • can I claim gratuity twice? once after completion of 5 years in one company and then again after completion of 5 years in another company. answer with relevant case laws or support through circulars or any notification?

    • As per gratuity law, you can claim multiple times from different employers as long as you have completed 5 years at the time of leaving the employer.

    • Yes you can claim

    • Of course you can claim gratuity twice or more whatsoever case may be. But in my opinion, before claiming gratuity from first organization, you should confirm from present employer, if they allow past service to be added as per their company’s rules. If yes, then you should get service certificate from previous employer and claim addition of length of service with present employer. It would be more beneficial.

    • Yes, you are eligible for Gratuity after completion of 5 years of employment. But your total Gratuity claim would not be more than 20 lakhs in your lifetime.

  • i am leaving my current organization after 6 years 5 months will i get 7 years of Gratuity or only 6 years of Gratuity.
    what is the formula for that.

    • The formula will be same as discussed in the article. And no. of years will be considered as 6 yrs.

  • can i apply for gratuity after 10 years of resignation
    i have resigned my previous job in the September 2009

    • Sir,
      Yes, you can claim it. Please contact the employer with relevant information.

  • I am working for pvt. Bank and i am serving the bank from 15/01/2015
    And i have resigned from the job on 26/05/2019
    My last working day is 26/08/2019
    I am eligible for gratuity or not?

    • Hi Abhishek Sharma,
      Yes, you are eligible for Gratuity considering your last working day.

      • You need to complete 04 yrs 240 days to be considered for gratuity. In my opinion you should extend date of resignation to 15.09.2019

  • iam sreelatha working with the organization from 1/09/2014 leaving the company 31 st august 2019 with 5 loss pay can i get gratuity

    • Hi Sreelatha,
      Yes, you are eligible for Gratuity.

  • I resigned on 2009 and years of service is 7years. May I claim bonus in 2019. May I lodge a file against employer if he denies to pay gratuity even after my resignation and eligible tenure.

  • Make a complaint to Labour Enforcement Officer (Central) of your area.

  • How is gratuity calculated in case the last drawn salary is in foreign currency.

    • Hi Raghu,
      The last salary drawn has to be converted to Indian currency and calculated using the formula as on the last day of working (This shall depend upon the, work agreement of the employee)

  • In how many days has this gratuity to be paid after leaving the company what to do in case company refuses to pay

    • Hi Raman Safaya,
      Gratuity has to be paid within 30 days of last working day fo the employee. If the employer refuses to pay then contact the labor court.

  • if any employee serving 04 year 06 month in any establishment and his age complete 60 years but after 60 year age he is working continuous total service of 08 year 10 month. is that employee eligible for gratuity.

    • Hi Vishnu,
      Yes, he is eligible as gratuity is not based on age criteria.

  • Hi,
    I am working in a software company since November -18-2014.
    I resigned on August-12-2019. Am I eleigible for Gratuity.
    If I consoder 5 days work per week, I have completed 4 years 195 days. Am I eligible for gratuity.

    Please educate me on this.

    • Hi Hari,
      Yes, you are eligible as gratuity will be applicable for anyone who has completed 4 years 6 months which will be rounded off to 5 years.

  • If an employee retired on 31st March and he was on loss of pay from January to March, prior to 3 months of his retirement, last pay drawn plus DA to be calculated as on 31st Dec or assumed pay plus DA on 31ST March. Please educate me on this.

    • Hi Joseph,
      Last pay drawn for all computation will be as per actual salary and not earned salary. Hence, you need to consider the Actual salary as on 31st March and not earned salary which is zero due to LOP.

  • Sir,Could you please tell me whether Saturday and sunday is included while calculating the days of working for the 5th year.
    I have completed 4years 8months and 14days
    Joining: 18sep 2014
    Exit: 31st May 2019
    Organisation have calculated as I have worked for 183 days (they have excluded Saturday and Sunday for the calculation)
    I work in an IT company which works 5days a week.
    Please let me know am I eligible for gratuity
    Thanks in advance

    • Hi Pavan,
      Inclusion of Saturday and Sunday for pay computation is as per company norms. But, if you asking for Gratuity Computation, then you are eligible as it does not consider the Weekly and general holidays.

  • if my service in single industry is 4years 11 months then i am eligible for grauity or not ?

    • Hi,
      Yes, you are eligible for gratuity.

      • IS IT LAW? CAN I MOVE TO LABOUR COMMISSION FOR NON-PAYMENT OF F&F ALONG WITH GRATUITY FOR SERVICE OF 4 YEARS AND 11 MONTHS. MY NOTICE PERIOD WAS 2 DAYS SHORT, i.e. 28 DAYS AND MY RESIGNATION WAS NEVER ACCEPTED, WHICH IS THE CASE WITH AT-LEAST 15 OR MORE EMPLOYEES KNOWN TO ME FROM SAME ORGANISATION.

        • Yes, you can

  • Hi,
    I have worked with an organization started from 23rd of March 2014 to 07th of August 2019. But during my tenure I was joined as an On the Job Trainee for a period of 6 months.
    Now the organization says they will only count the joining date from 1st of October 2014 (the date I was confirmed as an employee).
    Am I eligible for the Gratuity.

    Thanks

    • Hi Thomas,
      As per your company, you are on role with them only from Oct 2014. But, still, your eligible for gratuity, as you complete 4 years 10 months duration which is rounded off to 5 years

  • I have worked with an organization started from 25th of November 2014 and last date as on 30th of September 2019. But during my tenure I have taken 3 months of LOP (loss of pay) as I have extended my maternity leave after my delivery.
    So I wanted to know if I will be eligible for Gratuity. Is Loss of Pay days deducted from the total number of years and months worked?

    • Hi Sheetal,
      You are eligible for Gratuity. LOP less than 6 months will not effect the service period.

  • hello,

    i have completed 6 year 6 months and 0 days in my company.Am i eligible for 6 years or 7 years. we are working 5 days a week.

    • Hi Vineet,
      The eligibility is of 7 years.

    • yes. if you cover 5 years with 240 days of physical attn in every year, you will be eligible

  • Hi, I am claiming my Gratuity after 7 years of completing my service (last day of working). Can I insist on getting paid with interest for the last 7 years. If so at what rate the interest should be calculated.
    Thanks

    • Hi Nesian,
      There is no interest on Gratuity

  • IF a employee has worked for 40 years in an organisation will he eligible for gratuity for 40 years
    or he will get gratuity for 33 times of emoluments as applicable under CCS rules.

    • Hello sir,
      It is half of the emoluments (salary) for every 6 month period completed. It is subjected to a maximum of 33 times of emoluments.

  • I have completed 5+year in a organisation and there is no such rule for gratuity and i’m still working in the same organization.
    Please advise what to do ?

    • Hello,
      Gratuity is applicable for all types of organization. Please check with your HR.

  • Is “personal allowance” in the payslip included in gratuity calculation? ie. is it the same as dearness allowance?

    • Hello Sir,
      NO. DA and Personal Allowance are two different components.

  • Hi,

    I have completed 10 years 6 months 2 days in my current organization. what is the base line ? is it 10 years or 11 years ?

    Regards,
    Siva

    • It’s 11 Years

  • hi I m Sneha i working with my company to last 5 years but i cant not make my prasant 2 months.
    in this case can i get gratuity

    • Hi Sneha,
      Yes, you can get as you have worked for more than 4 years 6 months

  • Hii. if my joining date was 06th February 2015 and last working date was 09th August 2019 so i am eligible to get gratuity or not?

    • You may be eligible if you have not taken any long LOP absence

  • Employee X has worked in Group Company A for 3 Years and In Group Company B for 4 years.At the time transfer from Company A to B, Company A has transferred gratuity for Employee X amounting to Rs. 30000. No doubt about that he will be eligible for gratuity.
    My question about Gratuity Payment:
    Gratuity payment at the time of leaving Company will be:

    Option A:
    Rs 30000( Received from Company A)+Last Drawn salary X 4 (Completed year in B) X 15/26

    Option B

    Last Drawn Salary X 7 Years (Company A+B total Service) X 15/26

    • As you have mentioned that it is a group of company, hence the transfer will be considered as an inter group transfer. So, Option B will have opted for Gratuity calculation on the exit of the employee.

  • i have complited 35 yrs of service . my l.p is 79762/- what will be my gratuty.

    • Please calculate using the formulae; [(15 X last drawn salary X tenure of working) divided by 26] here Last drawn salary is Last working month BASIC + DA

  • I have completed 4 years 7 months and 24 days in the same org. But this includes weekends (Saturday and Sunday) and leaves as well. Am I eligible for gratuity?

    • Yes, you are eligible.

  • Hello,

    I joined the organisation on 1st April, 2015 and my last working day was 25th October, 2019.
    Am i eligible for Gratuity..

    Thanks.

    • Yes, you are eligible.

  • Hi,
    our official retirement age is 60 but the company would like to extend 1 year.
    will the gratuity would be calculated for another year or based on age 60

    Thanks

    • Gratuity will be considered if there is no break in the employment period.

  • I have completed 4 years 4 months and 5 days in the same org. But this includes weekends (Saturday and Sunday) and leaves as well. Am I eligible for gratuity?

    • NO, you are not eligible.

  • I heard that if we work in same organisation for more than 10 years then our gratuity amount gets doubled.
    What is the criteria for this. If we completes 7 years then how gratuity amount will be calculated

    • No, that is not true. The gratuity calculation remains the same across the years. The formula for calculation is given in the post above.

  • Hi I have joined my organization in June 2010. I went to onsite assignment in Sep 2012 and return on April 2013. Again went to onsite on Nov 2014. I resigned the organization at onsite in Aug 2019. Will I be eligible to get Gratutity?

    • Yes, you are eligible.

  • If an employee works in a organisation for more than 5 years but his working is less than 20 days in a month what will be status of gratuity

    • Yes, He will be eligible for gratuity.

  • I joined my company on 9th Feb 2015, i plan to resign on 10th Feb 2020 (Monday), will i be eligible for gratuity ? Or will there be an issue as 9th Feb (the day i complete 5 years) is a Sunday?

    • Yes. You’re Eligible.

  • I am doing job in Private Engg. College in Punjab Since 2008. Total job duration is 12 years. I have taken 5 month leave (Without pay) in 2015. Can I claim gratuity after quitting the college? How many years will be considered for Gratuity?

    • Yes, You’re eligible to claim gratuity.

  • we have to register for gratuity or how can we get this

    • It is given by the employer.

  • Hi, Team,

    Please provide notification of eligible for gratuity

    Thanks

  • Hi,

    If any employee (Joining Date – 03/01/2015) whose Basic + DA was 16,000 in Jul-2019 and He resigned on 13/08/2019 so, according to this his Basic was 8,900 (as 13 days of working in Aug-2019 month). Now, for gratuity calculation will his old 16k be considered as Basic + DA or 8,900. Please explain the same.

    • New.. the latest one has to be considered.

  • I have worked in a group called ABC Group and it had several organizations under the umbrella (all covered under payments of Gratuity Act 1972).

    I was working with Company named A under ABC Group for 1 year and 10 months post which (through internal job posting) my employment was transferred to Company B under the same group where i have worked for 9 year 11 months.

    Also last year company B came out of the group by selling the listed shares to some other entity. My salary slip shows date of joining Group MMDDYYYY and date of joining company B MMDDYYYY.

    1. Will i be paid gratuity on the total of the group company tenor of 11 years 9 months?

    • As the Company B is already out of the Group, you will be paid only for your service period in Company B.

  • i Joined my company on 1-october 2015 , if i will leave the company by 31st August 2020 will i be eligible for gratuity ?

    • Yes, you are eligible.

  • In some places, it is mentioned that last drawn salary is used for gratuity calculation. In some other places it is mentioned that 12 months average is considered for fixing last drawn salary for gratuity calculation. Request to clarify. This query is on behalf of my spouse who works in old generation of private sector bank whose operation is like more or less psu banks, but in some cases they do differ from psu banks. Specially while calculating retirement benefits. My spouse is planning to opt for VRS because of Covid-19 problem. Spouse is diabetic since 15 years and completed 30 years of services and still having service till 2028.

    • Gratuity is calculated on last drawn salary and not on 12 months average.

  • My salary is made up of three components:

    (1) Basic salary (example 100)
    (2) Flexible benefit plan – FBP (example 100)
    (3) HRA (example 50)
    Total salary example 250

    Question 1: Please clarify how much will be considered for gratuity calculation: only basic salary, or Basic + FBP or Basic + FBP + HRA?

    Question 2: If out of HRA allowance of 50, actual rent is 20, then unutilised HRA is 30. Can this be added into the calculation of monthly salary for gratuity calculation purposes?

    Regards,
    Kirti

    • A1) Only Basic will be considered

      A2) HRA is not considered for gratuity

  • I joined the company on 2-may-2020 and my last workinf day is 28-oct-2020, am I eligible

    • Sorry for the typo, I have joined the company on 2nd May 2016 and my last working day is on 28th oct 2020. Am I eligible for gratutity

      • No, you are not eligible as you are short by few days.

    • No, you are not eligible.

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