Question 1

What is the gratuity formula in India?

Accepted Answer

For employees covered under the Payment of Gratuity Act 1972, the formula is: Gratuity = (15 × Last Drawn Salary × Years of Service) / 26. For employees not covered under the Act, the formula is: Gratuity = (15 × Last Drawn Salary × Years of Service) / 30.

Question 2

Who is eligible for gratuity in India?

Accepted Answer

An employee is eligible to receive gratuity if they have completed at least 5 years of continuous service with the same employer. However, this 5-year rule is waived in case of death or disablement of the employee.

Question 3

Is gratuity fully taxable?

Accepted Answer

No, gratuity is exempt from tax up to a statutory limit of ₹20,00,000 for government and private sector employees covered under the Gratuity Act. Any amount received above this limit is taxable at normal tax slab rates.

Question 4

What is the definition of 'Last Drawn Salary' for gratuity?

Accepted Answer

For the purpose of calculating gratuity, 'Salary' includes your monthly Basic Salary + Dearness Allowance (DA). Other components like HRA, LTA, bonuses, or special allowances are excluded.

Question 5

Can an employer refuse to pay gratuity?

Accepted Answer

Under the Payment of Gratuity Act, any establishment with 10 or more employees must pay gratuity to eligible workers. An employer cannot contract out of this obligation or refuse payment, except in rare cases of termination due to willful negligence or riotous conduct.

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