Question 1

What is the maximum gratuity I can receive?

Accepted Answer

Under the Payment of Gratuity Act, 1972, the maximum gratuity payable is ₹20,00,000 (₹20 lakh). This cap was increased from ₹10 lakh to ₹20 lakh in 2019. Even if your calculated gratuity exceeds this amount, you will receive only the capped amount. However, some employers voluntarily pay gratuity above this cap as part of their compensation policy — check your employment contract for details.

Question 2

Who is eligible for gratuity in India?

Accepted Answer

To be eligible for gratuity, you must have completed a minimum of 5 years of continuous service with the same employer. The Act applies to establishments with 10 or more employees. However, in case of death or disability, the 5-year requirement is waived. Service of 4 years and 240 days (or 190 days for mines/seasonal work) is also treated as 5 years for eligibility.

Question 3

Is gratuity taxable in India?

Accepted Answer

For government employees, gratuity is fully exempt from income tax. For private sector employees covered under the Act, the least of the following is exempt: actual gratuity received, ₹20 lakh, or the formula-calculated amount (15/26 x last salary x years of service). Any amount exceeding the exemption limit is taxable as salary income at your applicable tax slab rate.

Question 4

How are years of service rounded for gratuity calculation?

Accepted Answer

If you have worked for a fraction of a year beyond your completed years, and that fraction exceeds 6 months, it is rounded up to the next full year. For example, 7 years and 7 months is treated as 8 years, while 7 years and 5 months is treated as 7 years. This rounding can significantly impact your gratuity amount, especially at higher salary levels.

Question 5

Can gratuity be forfeited by the employer?

Accepted Answer

An employer can forfeit gratuity only in specific cases: if the employee is terminated for willful destruction of employer property, or if the employee is terminated for riotous or violent behaviour, or for any act of moral turpitude committed during employment. Resignation, retirement, or redundancy cannot be grounds for forfeiture. If forfeited unfairly, you can file a complaint with the Controlling Authority under the Act.

Question 6

What is the difference between gratuity for Act-covered and non-covered employees?

Accepted Answer

Employees covered under the Payment of Gratuity Act get the formula: salary x 15/26 x years. Non-covered employees (in establishments with fewer than 10 employees) get: salary x 15/30 x years, which yields a slightly lower amount. The tax exemption rules also differ — for non-covered employees, the exemption is based on half-month salary for each completed year of service.

Question 7

Is gratuity calculated on basic salary or gross salary?

Accepted Answer

Gratuity is calculated on your last drawn basic salary plus dearness allowance (DA), not on gross salary. Components like HRA, special allowance, bonuses, and other perks are excluded from the calculation. This is why employees with a higher basic-to-CTC ratio receive more gratuity. If your employer includes DA as part of basic, your gratuity amount will be higher.

Gratuity Calculator India — Calculate Your Gratuity Online