Question 1

What is gratuity?

Accepted Answer

Gratuity is a statutory lump-sum benefit paid by an employer to an employee for rendering long, continuous service — on resignation, retirement, or exit after at least five years. It's a reward for loyalty, not a deduction from your salary, and is over and above your provident fund.

Question 2

How is gratuity calculated?

Accepted Answer

For establishments covered by the Payment of Gratuity Act, the formula is: (15 ÷ 26) × last drawn monthly salary (basic + DA) × completed years of service. The "15/26" represents 15 days' wages for each year, based on a 26-day working month. Our calculator applies this and the ₹20 lakh cap.

Question 3

What counts as "salary" in the formula?

Accepted Answer

Only basic salary plus dearness allowance (DA) — not HRA, bonuses, overtime or other allowances. It's the LAST drawn basic + DA (i.e. at exit), which is why gratuity is larger for long-tenured, senior employees.

Question 4

When do I become eligible for gratuity?

Accepted Answer

After completing five years of continuous service with the same employer. The five-year condition is waived if service ends due to the employee's death or disablement — in those cases gratuity is payable regardless of tenure.

Question 5

How are partial years counted?

Accepted Answer

A year is counted as completed if you've worked it fully. For the final part-year, many establishments (and court rulings) treat service of 6 months or more as a full year and less than 6 months as ignored — so 7 years 8 months counts as 8 years. Our calculator uses whole years; adjust if your employer rounds.

Question 6

Is gratuity taxable?

Accepted Answer

For private-sector employees covered by the Act, gratuity is tax-free up to ₹20 lakh (a lifetime limit across employers); anything above is taxable at slab. For government employees, gratuity is fully exempt with no ceiling. The exemption is the least of: the actual gratuity, the formula amount, or ₹20 lakh.

Question 7

When must the employer pay it?

Accepted Answer

Within 30 days of gratuity becoming payable (i.e. from your last working day). If the employer delays beyond 30 days, they must pay simple interest on the amount for the delay period. Gratuity cannot be withheld except in specific cases of proven misconduct.

Question 8

Can an employer refuse or forfeit gratuity?

Accepted Answer

Gratuity can be wholly or partly forfeited only if your services were terminated for specified misconduct — such as causing damage/loss to the employer's property (to that extent), or for riotous/violent conduct or an offence involving moral turpitude during employment. It cannot be denied merely because you resigned.

Question 9

Do fixed-term and contract employees get gratuity?

Accepted Answer

Fixed-term employees are entitled to gratuity on a pro-rata basis under recent labour reforms, even without completing five years. Genuine contract workers are typically covered by their contractor's obligations. The rules are evolving under the new Labour Codes.

Question 10

Is gratuity the same as EPF or pension?

Accepted Answer

No — they're separate. EPF is a monthly contributory fund (you + employer), the EPS/NPS pays a pension, and gratuity is a one-time, employer-funded lump sum for long service. A retiring employee may receive all three.

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