What is Gratuity?
Gratuity is a lumpsum payment made by an employer to an employee as a token of appreciation for services rendered. Under the Payment of Gratuity Act 1972, employees who complete 5 or more years of continuous service are entitled to gratuity. The standard formula is: Gratuity = (Last Drawn Salary × 15 × Years of Service) / 26. The maximum tax-free gratuity is ₹20 lakh.
Frequently Asked Questions
Is gratuity taxable?
Government employees get fully tax-free gratuity. For private employees, up to ₹20 lakh is tax-free.
What salary is used for gratuity?
Last drawn basic salary plus dearness allowance.