India Gratuity
Act Guide 2025

Detailed Eligibility & The 5-Year Rule

Under the Payment of Gratuity Act 1972, an employee is eligible for gratuity if they have rendered "continuous service" for at least 5 years. However, there are critical nuances to this rule:

• Continuous Service: This includes days of leave, sickness, or temporary disablement.
• The 240-Day Rule: If an employee completes 4 years and 240 days (or 190 days in certain sectors), they are often considered to have completed the 5th year for gratuity purposes.
• Death or Disablement: The 5-year requirement is waived in cases of death or disablement due to accident or disease.

The 15/26 Calculation Formula

The standard formula used to calculate gratuity for employees covered under the Act is:

Step-by-Step Calculation Example

Let's assume an employee, Ramesh, worked for 12 years and his last drawn basic salary (including DA) was ₹60,000.

Taxation & Exemptions (Section 10(10))

Gratuity is a retirement benefit and enjoys significant tax exemptions under the Income Tax Act:

• Government Employees: Entire gratuity amount received is tax-exempt.
• Private Sector: Tax exemption is the least of: Actual gratuity received, ₹20,00,000 (Statutory limit), or 15 days' salary for every completed year of service.

Nomination & Payment Timeline

Every employee who has completed one year of service must make a nomination (Form F) to ensure the gratuity is paid to their legal heirs in case of death. Employers are legally bound to pay the gratuity within 30 days from the date it becomes payable.

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