# 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](https://labour.gov.in)

## How NeuralHR.AI handles Gratuity (India)

- [Best payroll software India](https://neuralhr.ai/en/best-payroll-software-india)
- [Best HR software India](https://neuralhr.ai/en/best-hr-software-india)

## Related terms

- [EPFO & PF](https://neuralhr.ai/en/hr-glossary/epfo-pf): The Employees' Provident Fund (EPF) is India's mandatory retirement savings scheme governed by the EPFO for establishments with 20 or more employees.
- [Form 16](https://neuralhr.ai/en/hr-glossary/form-16): Form 16 is the statutory tax deduction certificate issued annually by Indian employers under Section 203 of the Income-tax Act, 1961 to employees whose salary had TDS deducted.
- [Final settlement](https://neuralhr.ai/en/hr-glossary/final-settlement): A final settlement is the closing payment made to a departing employee, combining outstanding salary, unused leave, end-of-service gratuity and any contractual dues, less lawful deductions.
- [End-of-service gratuity](https://neuralhr.ai/en/hr-glossary/gratuity): End-of-service gratuity is the lump sum a UAE employer owes an employee with at least one year of continuous service, calculated on basic salary under Federal Decree-Law No. 33 of 2021.

---

Canonical page: https://neuralhr.ai/en/hr-glossary/gratuity-india
Last verified: 2026-08-29

Published by NeuralHR.AI — AI-native HR and payroll platform for the UAE, Saudi Arabia and India.