Gratuity Under the Payment of Gratuity Act

Eligibility

• Establishments with 10 or more employees are covered, and remain covered thereafter.
• Five years of continuous service is required — except where employment ends due to death or disablement.
• Payable on superannuation, retirement, resignation, death or disablement.

Calculation

For employees covered by the Act, the formula is: last drawn basic wages plus dearness allowance × 15 ÷ 26 × completed years of service. A part of a year beyond six months counts as a full year.

The maximum statutory gratuity ceiling is ₹20,00,000. Amounts above the ceiling may be paid contractually but are treated differently for tax.

Payment timeline

Gratuity must be paid within 30 days of it becoming payable. Delay beyond that attracts simple interest for the delayed period, so a disputed amount should still be paid to the extent admitted.

Frequently asked questions

Is gratuity payable before five years?

Only where employment ends because of death or disablement; otherwise five years of continuous service is required.

Is nomination compulsory?

Yes — employees should file Form F, and it should be updated after marriage or a change in family.

Sources & references

• India Code — Central Acts