Glossary · HR, Payroll & Labour Law
Gratuity
A lump-sum retirement benefit paid by the employer to an employee who completes at least 5 years of continuous service under the Payment of Gratuity Act, 1972.
Gratuity formula: Last drawn basic + DA × 15/26 × years of service. The maximum tax-free gratuity is ₹20 lakh per employer (raised from ₹10 lakh). For 5 years of service, the minimum qualifying period, the formula gives 1.5 months of basic+DA. Gratuity is payable on retirement, resignation (after 5 years), superannuation, or death/disability. The employer can also cover gratuity liability through a group gratuity insurance policy with an insurer.
Examples
An employee with last basic+DA of ₹1 lakh and 20 years of service receives ₹1,00,000 × 15/26 × 20 = ₹11,53,846 as gratuity, fully tax-free up to ₹20 lakh.