What is Gratuity (India)?
Gratuity (India) stands for Payment of Gratuity Act, 1972.
Indian statutory gratuity is a mandatory lump-sum retirement benefit payable to employees with 5 or more years of continuous service under the Payment of Gratuity Act, 1972.
Gratuity (India) explained
The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons on any day in the preceding 12 months. Gratuity is payable on superannuation, retirement, resignation, death, or disablement, with the 5-year continuous service rule waived in cases of death or disablement.
For covered establishments, the statutory calculation formula is (15 × Last Drawn Basic Salary + DA × Completed Years of Service) ÷ 26, where 26 represents the standard working days in a month and 15 represents 15 days of salary. Tenure exceeding six months is rounded up to the nearest full year.
The maximum cumulative gratuity amount exempt from income tax under Section 10(10) of the Income-tax Act is ₹20,00,000 (₹20 Lakhs). Employers often fund this statutory liability through an approved gratuity trust or group gratuity insurance scheme.
Official source: Ministry of Labour & Employment, Government of India
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