Question 1

How is gratuity calculated in India?

Accepted Answer

Gratuity is calculated using the formula: Gratuity = (15 x Last Drawn Salary x Years of Service) / 26. Here, last drawn salary means basic salary plus dearness allowance (DA). The number 15 represents 15 days' wages, and 26 represents the working days in a month. For employees not covered under the Payment of Gratuity Act, the formula uses 30 instead of 26 in the denominator.

Question 2

What is the maximum tax-free gratuity amount?

Accepted Answer

For private sector employees, gratuity up to Rs. 20 lakhs is exempt from income tax under Section 10(10) of the Income Tax Act. Any gratuity amount exceeding Rs. 20 lakhs is taxable at your applicable income tax slab rate. For government employees, the entire gratuity amount is fully exempt from income tax.

Question 3

After how many years is an employee eligible for gratuity?

Accepted Answer

An employee becomes eligible for gratuity after completing 5 years of continuous service with the same employer. However, the Supreme Court has ruled that 4 years and 240 days of service also qualifies. Gratuity is payable upon retirement, resignation, superannuation, or death/disability of the employee.

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