Introduction

Gratuity is the payment made by the employer to his ex- employee for his past services. Gratuity is similar to a  gift given by employer for appreciation of past services of his employee . The technical definition of gratuity given by ICAI is “gratuity is a  voluntary payment made by an employer  in appreciation of services rendered by employee .

Who is eligible for Gratuity ?

As per Payment of Gratuity Act  1972, any employee who has been in continuous service for 5 years is eligible for gratuity .
During the above mentioned 5 years , employee is eligible for casual leave and sick leave without affecting his eligibility.

In case of death of an employee , the above condition 5 Years of continuous service is not applicable i.e. even if an employee dies
after 2 years of service , he/she is still eligible for gratuity .

 How is gratuity calculated? Gratuity calculation formula for employees receiving monthly salary (15/26) * Last Salary Drawn * Completed years of service

When calculating completed years of service , if an employee worked for more than 6 months , it will be considered as full year .
Example : Employee worked for 14 years and 7 month , then completed years of service = 15 years
Example: Employee worked for 14 years and 5 months ,then completed years of service = 14 years
Example: Employee worked for 14 years and 6 months, then completed years of service = 14 years
Last salary drawn = basic salary + dearness allowance
   

Maximum Amount of Gratuity

The amount of gratuity cannot exceed Rs 10,00,000 (10 lacs) . Even if it exceeds , maximum amount payable by employer shall be Rs 10,00,000/-

When is Gratuity Payable ?

Gratuity is Payable on employee’s Supernnuation , Retirement Or death (whichever is earlier). 

Download the Gratuity Calculator as per the Gratuity Act 1972