Question 1

What is the minimum service period required for gratuity?

Accepted Answer

You need a minimum of 5 years of continuous service with the same employer to be eligible for gratuity. However, in case of death or disability, the 5-year requirement is waived and gratuity becomes payable regardless of service period.

Question 2

How is gratuity calculated for employees covered under the Gratuity Act?

Accepted Answer

For employees covered under the Payment of Gratuity Act (establishments with 10+ employees), the formula is: (Last Drawn Salary × 15 × Years of Service) / 26. Last drawn salary includes Basic + DA only. If you have served 6+ months in the final year, it rounds up to a full year.

Question 3

What is the maximum gratuity limit and tax exemption?

Accepted Answer

The maximum gratuity payable is ₹20 lakh for private sector employees and ₹25 lakh for central government employees. For tax purposes, gratuity up to ₹20 lakh is exempt from tax for private employees, while government employees receive full exemption.

Question 4

Does resigning before 5 years mean I lose gratuity benefits?

Accepted Answer

Yes, if you resign before completing 5 years of continuous service, you forfeit gratuity benefits. However, some employers may offer gratuity in the employment contract even for shorter tenures. Also, if you're terminated due to misconduct involving moral turpitude, you may forfeit gratuity even after 5 years.

Question 5

What is the difference in gratuity calculation for covered vs non-covered establishments?

Accepted Answer

Covered establishments (10+ employees) use divisor 26 in the formula, representing working days per month. Non-covered establishments use divisor 30 (calendar days), resulting in slightly lower gratuity. Both use the same 15 × Years × Last Salary formula, just with different divisors.

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