Gratuity Act

Gratuity is a voluntary Payment made by the employer to the employee in recognition of continuous, meritorious services and sincere efforts by the employee towards the organization. It is governed under the Payment of Gratuity Act 1972.Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job


  1. Any employee has to render minimum five years’ of service.
  2. At the time of retirement or resignation or on superannuation, an employee should have rendered continuous service of not less than five years.
  3. In case of death or disablement, the gratuity is payable, even if he has not completed 5 years of service.


Payment of gratuity

(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than 5years.

(a) On his superannuation.

(b) On his retirement or resignation.

(c) On his death or disablement due to accident or disease.

Calculation of gratuity
Gratuity = Monthly salary X  15 X Number of years of service

Monthly salary= last month drawn salary by the employee.

26 = total number of working days in a month.

15 = number of days in half of the month.

Important points to remember

  • Generally, only government employers give DA to their employees.
  • The salary of the employee may differ over a period of time on account of change in basic, DA and/or other factors.
  • In case gratuity is received from more than one employer during the previous year, maximum exemption allowed is up to Rs 20, 00,000.