Question 1

Who is eligible for gratuity in India?

Accepted Answer

Under the Payment of Gratuity Act, 1972, employees who have completed a minimum of 5 years of continuous service with an employer are eligible for gratuity. This applies to establishments with 10 or more employees. In case of death or disability, the 5-year requirement is waived.

Question 2

How is gratuity calculated?

Accepted Answer

For employees covered under the Gratuity Act, the formula is: Gratuity = (Last Drawn Salary x 15 x Years of Service) / 26. Here, 'Last Drawn Salary' means basic salary plus dearness allowance, 15 represents 15 days' wages, and 26 is the number of working days in a month.

Question 3

What is the tax-free limit for gratuity?

Accepted Answer

For government employees, the entire gratuity is tax-free. For private sector employees covered under the Gratuity Act, gratuity up to Rs 20 lakh is exempt from income tax. Any amount exceeding Rs 20 lakh is taxable at your applicable income tax slab rate.

Question 4

Is gratuity included in CTC?

Accepted Answer

Many companies include gratuity as a component of CTC (Cost to Company). However, gratuity is only payable after 5 years of continuous service. If you leave before completing 5 years, you do not receive gratuity even though it was shown in your CTC.

Question 5

Can an employer refuse to pay gratuity?

Accepted Answer

An employer cannot refuse to pay gratuity if the employee has completed 5 years of service. Gratuity is a statutory right under the Payment of Gratuity Act. However, gratuity can be forfeited (partially or wholly) if the employee's services were terminated for willful misconduct or acts of violence.

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