Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for long and meritorious service upon retirement, resignation, or death.
1. Eligibility for Gratuity
- Gratuity is payable to an employee on the termination of their employment after they have rendered continuous service for not less than 5 years:
- Upon superannuation/retirement.
- Upon resignation or termination.
- Exception: The completion of 5 years continuous service is not mandatory if termination is due to death or disablement caused by accident or disease.
2. Formula for Calculation
🧮 Gratuity Calculation Formula:
Gratuity = (Last Drawn Salary * 15 * Completed Years of Service) / 26
- "Last Drawn Salary" includes Basic Pay and Dearness Allowance (DA).
- "26" represents the working days in a month.
- A fraction of service exceeding 6 months is rounded off to a full year (e.g., 7 years and 7 months is counted as 8 years).
- The maximum tax-free gratuity is capped at Rs. 20,000,000.
3. Forfeiture of Gratuity
Under Section 4(6), the gratuity of an employee whose services have been terminated for any act, willful omission, or negligence causing damage to the property of the employer can be forfeited to the extent of the damage caused. It can be wholly or partially forfeited if services are terminated for riotous conduct, violence, or acts of moral turpitude.