Question 1

How is gratuity calculated in India?

Accepted Answer

For employers covered under the Payment of Gratuity Act, gratuity equals the last drawn basic salary plus dearness allowance, multiplied by 15/26 (15 days out of a 26-working-day month) and by the years of service. For employers not covered by the Act, the factor is 15/30, half a month's wages per year.

Question 2

When does an employee become eligible for gratuity?

Accepted Answer

After 5 years of continuous service with the same employer. The one exception is death or disability while in service, where gratuity is payable regardless of tenure. A period beyond six months in the final year counts as a full year of service.

Question 3

Is there a limit on the gratuity amount?

Accepted Answer

Yes. The statutory ceiling is ₹20,00,000, raised from ₹10,00,000 on 29 March 2018. Any amount the formula computes above the ceiling is paid as ex gratia, voluntary and not required by law. The ₹20 lakh cap applies per employer across your service there.

Question 4

What counts as wages for gratuity?

Accepted Answer

Only the basic salary plus dearness allowance on the last day of service. If the employee's wages rose in the final 10 months, the higher of the last-day or the average of the preceding 10 months is used. Bonuses, commissions, overtime and reimbursements are excluded.

Question 5

How does gratuity show up on payslips?

Accepted Answer

Prudent employers accrue gratuity monthly: the standard provision is 4.81% of basic (15/26 × 1/12), so the lump sum is fully funded when it falls due. Salarier can show this accrual as a separate line on every payslip.

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