{"id":7456,"date":"2025-07-07T09:40:00","date_gmt":"2025-07-07T09:40:00","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/?post_type=glossary&#038;p=7456"},"modified":"2025-07-07T09:40:01","modified_gmt":"2025-07-07T09:40:01","slug":"gratuity-rules","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/gratuity-rules\/","title":{"rendered":"Gratuity Rules"},"content":{"rendered":"<p>Gratuity is a <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/lump-sum\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">lump sum<\/a> payment made by an employer to an employee as a token of appreciation for the services rendered over a period of time. In India, gratuity is governed by the <strong>Payment of <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/gratuity-act\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">Gratuity Act<\/a>, 1972<\/strong>, which mandates employers to pay gratuity to employees who have completed a certain period of continuous service.<\/p>\n\n\n\n<h2 id=\"eligibility-criteria-for-gratuity\" class=\"wp-block-heading\">Eligibility Criteria for Gratuity<\/h2>\n\n\n\n<p>An employee is eligible to receive gratuity if:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>They have completed <strong>at least 5 years<\/strong> of continuous service with the same employer.<\/li>\n\n\n\n<li>The termination of employment is due to:\n<ul class=\"wp-block-list\">\n<li>Superannuation (retirement).<\/li>\n\n\n\n<li>Resignation.<\/li>\n\n\n\n<li>Death or disablement due to accident or disease (in such cases, the 5-year rule is waived).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p><strong>Note:<\/strong> Continuous service includes periods of leave, layoff, or a<a class=\"glossaryLink\"  href=\"https:\/\/lemonn.co.in\/blog\/glossary\/bse\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'  tabindex='0' role='link'>bse<\/a>nce due to sickness, accident, or any other reason not due to the employee&rsquo;s fault.<\/p>\n\n\n\n<h2 id=\"gratuity-calculation-formula\" class=\"wp-block-heading\">Gratuity Calculation Formula<\/h2>\n\n\n\n<p>The formula to calculate gratuity depends on whether the employer is covered under the Payment of Gratuity Act, 1972.<\/p>\n\n\n\n<h3 id=\"1-for-employers-covered-under-the-act\" class=\"wp-block-heading\">1. For Employers Covered Under the Act<\/h3>\n\n\n\n<p><strong>Gratuity = (Last Drawn Salary &#xD7; 15 &#xD7; Number of Completed Years of Service) \/ 26<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Last Drawn Salary includes <strong>Basic Pay + <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/dearness-allowance\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">Dearness Allowance<\/a> (DA)<\/strong>.<\/li>\n\n\n\n<li>The number of years is rounded off: if an employee has completed more than 6 months in the last year, it is considered as a full year.<\/li>\n<\/ul>\n\n\n\n<p><strong>Example:<\/strong><\/p>\n\n\n\n<p>If an employee has a last drawn salary (Basic + DA) of &#x20B9;50,000 and has completed 10 years and 7 months of service:<\/p>\n\n\n\n<p>Gratuity = (50,000 &#xD7; 15 &#xD7; 11) \/ 26 = &#x20B9;3,17,307.69<\/p>\n\n\n\n<h3 id=\"2-for-employers-not-covered-under-the-act\" class=\"wp-block-heading\">2. For Employers Not Covered Under the Act<\/h3>\n\n\n\n<p><strong>Gratuity = (Last Drawn Salary &#xD7; 15 &#xD7; Number of Completed Years of Service) \/ 30<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>In this case, the number of years is not rounded off. Only completed years are considered.<\/li>\n<\/ul>\n\n\n\n<p><strong>Example:<\/strong><\/p>\n\n\n\n<p>If an employee has a last drawn salary of &#x20B9;50,000 and has completed 10 years and 7 months of service:<\/p>\n\n\n\n<p>Gratuity = (50,000 &#xD7; 15 &#xD7; 10) \/ 30 = &#x20B9;2,50,000<\/p>\n\n\n\n<p><strong>Note:<\/strong> Employers not covered under the Act are not legally bound to pay gratuity, but many do so as a goodwill gesture.<\/p>\n\n\n\n<h2 id=\"taxation-on-gratuity\" class=\"wp-block-heading\"><a class=\"glossaryLink\"  href=\"https:\/\/lemonn.co.in\/blog\/glossary\/tax\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'  tabindex='0' role='link'>Tax<\/a>ation on Gratuity<\/h2>\n\n\n\n<p>The tax exemption on gratuity depends on the type of employment:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Government Employees:<\/strong> Gratuity received is fully exempt from <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/income-tax\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">income tax<\/a>.<\/li>\n\n\n\n<li><strong>Non-Government Employees Covered Under the Act:<\/strong> The least of the following is exempt:\n<ul class=\"wp-block-list\">\n<li>Actual gratuity received.<\/li>\n\n\n\n<li>&#x20B9;20,00,000 (as per the latest amendment).<\/li>\n\n\n\n<li>Gratuity calculated as per the formula.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Non-Government Employees Not Covered Under the Act:<\/strong> The least of the following is exempt:\n<ul class=\"wp-block-list\">\n<li>Actual gratuity received.<\/li>\n\n\n\n<li>&#x20B9;10,00,000.<\/li>\n\n\n\n<li>(Average salary of last 10 months &#xD7; 15 &#xD7; Number of years of service) \/ 30.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p>Any amount received over the exempt limit is taxable under the head &#x201C;Income from Salary&#x201D;. <\/p>\n\n\n\n<h2 id=\"key-points-to-remember\" class=\"wp-block-heading\">Key Points to Remember<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Maximum Gratuity Limit:<\/strong> The maximum gratuity payable is &#x20B9;20,00,000. Any amount beyond this is considered ex-gratia and is taxable.<\/li>\n\n\n\n<li><strong>Forfeiture of Gratuity:<\/strong> An employer can forfeit gratuity, wholly or partially, if the employee has been terminated for misconduct, riotous behavior, or any act of violence.<\/li>\n\n\n\n<li><strong>Payment Timeline:<\/strong> Gratuity should be paid within 30 days from the date it becomes payable. Delayed payment attracts interest.<\/li>\n<\/ul>\n\n\n\n<h2 id=\"conclusion\" class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>Gratuity serves as a financial cushion for employees post-retirement or upon leaving an organization after long-term service. Understanding the rules, eligibility, and calculation methods ensures that employees can plan their finances effectively and claim their rightful dues.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for the services rendered over a period of time. In India, gratuity is governed by the Payment of Gratuity Act, 1972, which mandates employers to pay gratuity to employees who have completed a certain period of continuous [&#x2026;]<\/p>\n","protected":false},"author":9,"featured_media":0,"menu_order":0,"template":"","meta":{"footnotes":""},"class_list":["post-7456","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/7456","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/9"}],"version-history":[{"count":1,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/7456\/revisions"}],"predecessor-version":[{"id":7457,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/7456\/revisions\/7457"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=7456"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}