Question 1

What is gratuity?

Accepted Answer

Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for services rendered. It is governed by the Payment of Gratuity Act, 1972 in India and is payable on resignation, retirement, or death after a minimum of 5 years of continuous service.

Question 2

How is gratuity calculated?

Accepted Answer

For Act-covered employees: Gratuity = (Last Basic + DA) × 15/26 × Years of Service. For non-Act employees: Gratuity = (Last Basic + DA) × 15/30 × Years of Service. The multiplier 15/26 represents 15 days' wage in a 26-working-day month.

Question 3

What is the minimum service period for gratuity?

Accepted Answer

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

Question 4

Is gratuity taxable?

Accepted Answer

For government employees, gratuity is fully tax-exempt. For private employees covered under the Gratuity Act, gratuity up to ₹20 lakh is tax-exempt. Amounts above ₹20 lakh are taxed as per the applicable income tax slab.

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