{"id":7781,"date":"2025-07-15T07:31:34","date_gmt":"2025-07-15T07:31:34","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/?post_type=glossary&#038;p=7781"},"modified":"2025-07-15T07:31:38","modified_gmt":"2025-07-15T07:31:38","slug":"gratuity-act","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/gratuity-act\/","title":{"rendered":"Gratuity Act"},"content":{"rendered":"<p>The <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> is a law that helps you get a thank-you bonus when you leave a job after working for at least <strong>5 years<\/strong>. This money is paid by your employer and is meant to appreciate your dedication.<\/p>\n\n\n\n<h2 id=\"who-is-eligible\" class=\"wp-block-heading\"><strong>Who Is Eligible?<\/strong><\/h2>\n\n\n\n<p>You qualify for gratuity if:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>You&#x2019;ve worked <strong>5 or more years<\/strong> continuously.<\/li>\n\n\n\n<li>You are a <strong>full-time salaried or wage employee<\/strong>.<\/li>\n\n\n\n<li>You leave your job due to <strong>retirement, resignation, or death\/disability<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p><strong>Note:<\/strong> Even if you switch jobs, leaving each one after 5+ years counts separately.<\/p>\n\n\n\n<h2 id=\"how-is-gratuity-calculated\" class=\"wp-block-heading\"><strong>How Is Gratuity Calculated?<\/strong><\/h2>\n\n\n\n<p>There are two ways employers usually calculate it:<\/p>\n\n\n\n<h3 id=\"for-government-psu-employees\" class=\"wp-block-heading\">For Government\/PSU Employees<\/h3>\n\n\n\n<p>Formula:<\/p>\n\n\n\n<pre class=\"wp-block-code\"><code>Last Drawn Salary &#xD7; Service Years &#xD7; 1\/4  <\/code><\/pre>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>Salary<\/em> = 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><\/li>\n\n\n\n<li><em>Years<\/em> = Rounded down to nearest half-year<\/li>\n<\/ul>\n\n\n\n<h3 id=\"for-private-employees\" class=\"wp-block-heading\">For Private Employees<\/h3>\n\n\n\n<p>Formula:<\/p>\n\n\n\n<pre class=\"wp-block-code\"><code>Last Drawn Salary &#xD7; Service Years &#xD7; 15\/26  <\/code><\/pre>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>15 days wage<\/em>: Equals 15\/26 of a monthly salary<\/li>\n\n\n\n<li><em>Example<\/em>: If salary = &#x20B9;30,000\/month and you worked 10 years,<br>Gratuity = 30,000 &#xD7; 10 &#xD7; 15\/26 = &#x20B9;1,73,076<\/li>\n<\/ul>\n\n\n\n<h2 id=\"tax-implications-on-gratuity\" class=\"wp-block-heading\"><strong><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> Implications on Gratuity<\/strong><\/h2>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Exempt for government workers<\/strong> &#x2013; entire amount is tax-free.<\/li>\n\n\n\n<li><strong>Private <a class=\"glossaryLink\"  href=\"https:\/\/lemonn.co.in\/blog\/glossary\/sector\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'  tabindex='0' role='link'>sector<\/a> exemption limit:<\/strong> Up to &#x20B9;20 lakh is tax-free.<\/li>\n\n\n\n<li><strong>Beyond &#x20B9;20 lakh:<\/strong> The extra amount is taxable as income.<\/li>\n<\/ol>\n\n\n\n<h2 id=\"simple-example\" class=\"wp-block-heading\"><strong>Simple Example<\/strong><\/h2>\n\n\n\n<p><strong>Meet Raj<\/strong>, a private sector employee:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Worked: 8 years<\/li>\n\n\n\n<li>Salary (Basic + DA): &#x20B9;40,000\/month<br>Gratuity = 40,000 &#xD7; 8 &#xD7; 15\/26 = &#x20B9;1,84,615<br>Tax-free limit = &#x20B9;1,84,615 (below &#x20B9;20 lakh)<br>No tax payable on this gratuity.<\/li>\n<\/ul>\n\n\n\n<h3 id=\"why-this-matters\" class=\"wp-block-heading\">Why This Matters<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Helps you plan finances when leaving a job.<\/li>\n\n\n\n<li>Ensures you understand if gratuity is fully tax-free or partly taxable.<\/li>\n\n\n\n<li>Aids in making smart tax decisions and filing returns correctly.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The Gratuity Act is a law that helps you get a thank-you bonus when you leave a job after working for at least 5 years. This money is paid by your employer and is meant to appreciate your dedication. Who Is Eligible? You qualify for gratuity if: Note: Even if you switch jobs, leaving each [&#x2026;]<\/p>\n","protected":false},"author":9,"featured_media":0,"menu_order":0,"template":"","meta":{"footnotes":""},"class_list":["post-7781","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/7781","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\/7781\/revisions"}],"predecessor-version":[{"id":7782,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/7781\/revisions\/7782"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=7781"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}