Question 1

What is the formula for calculating gratuity in India?

Accepted Answer

For employees covered under the Payment of Gratuity Act: Gratuity = (Last drawn salary × 15 × Years of service) / 26. For employees not covered: Gratuity = (Last drawn salary × 15 × Years of service) / 30. Last drawn salary includes basic pay + dearness allowance.

Question 2

How many years of service are required to be eligible for gratuity?

Accepted Answer

An employee must complete at least 5 years of continuous service with the same employer to be eligible for gratuity. However, if an employee dies or becomes disabled, gratuity is payable regardless of tenure.

Question 3

Is gratuity taxable in India?

Accepted Answer

Gratuity received by government employees is fully tax-exempt. For private-sector employees covered under the Gratuity Act, the tax-exempt limit is ₹20 lakh. Any amount above ₹20 lakh is taxable as income.

Question 4

Do I get gratuity if I resign before 5 years?

Accepted Answer

Generally, no. Gratuity requires 5 years of continuous service. However, if you have completed 4 years and 240 days (roughly 4 years and 8 months), some courts have held that this qualifies as 5 years.

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