Payment of gratuity in India

Hello and Welcome. In this post, we will discuss all about Gratuity in India. We will cover the following topics:

What is gratuity?

Gratuity is a monetary / loyalty benefit given by an organization to its employees at the time of leaving the organization. As per the gratuity law, it is applicable for people who have worked in the same organization for 5 or more years. While it is usually paid at the time of retirement, it can also be paid before if certain conditions are met. This benefit is made mandatory by Payment of Gratuity Act, 1972 in recognition of employee’s years of service in the organization.

Gratuity applicability for organizations:

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

  • Factories,
  • mines,
  • oilfields,
  • plantations,
  • ports,
  • railway companies,
  • shops or other establishments.

In general, Gratuity is applicable to any organization which employs ten or more people or has employed (10 or more people) at any given time in the preceding twelve months.

Gratuity eligibility 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 for gratuity as long as they are considered as employees in the company
  • If an employee is being transferred overseas on an assignment, then he / she is eligible for gratuity.
  • An employee who passes away or suffers disability due to illness or an accident.

Gratuity eligibility in India

Gratuity formula

In India, Gratuity calculation of gratuity is on the following formula: Gratuity = Last Drawn Salary × 15/26 × No. of Years of Service

Example: Imagine that you worked with ABC company for a period of 15 years. Your last drawn basic salary along with dearness allowance was Rs 30000. Hence, The amount of gratuity = 15*30000*15 / 26 = Rs 2,59,615

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 down 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, no. of years will be 20 years.
  • The amount of gratuity cannot exceed Rs. 20 lakhs. If it exceeds that amount, it will come under as ex-gratia.

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Is Gratuity Taxable?

Yes. Gratuity is taxable but only if it exceeds an amount of Rs. 20 Lakh. The taxable amount will be added to the total income under “others” category and tax will be calculated on income tax slab.

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, exemption will only be for Rs. 20 and Rs. 5,25,742 is taxable.

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

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28 thoughts on “Payment of Gratuity in India – The complete guide

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

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

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

  2. 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

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

  3. 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?

    1. 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.

    2. 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.

  4. 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.

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

  6. 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?

      1. 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

  7. 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

  8. 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.

    1. 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)

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

  10. 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.

  11. 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.

  12. 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.

  13. 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

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