Question 1

What is the gratuity formula in India?

Accepted Answer

Gratuity = (Last drawn salary × 15 × Years of service) / 26. Last drawn salary includes basic salary and dearness allowance.

Question 2

When am I eligible for gratuity?

Accepted Answer

You are eligible for gratuity after completing 5 years of continuous service with the same employer. In case of death or disability, there is no minimum service requirement.

Question 3

Is gratuity taxable in India?

Accepted Answer

Gratuity up to ₹20 lakhs is tax-exempt for private sector employees. For government employees, the entire gratuity is tax-free.

Question 4

Is gratuity part of CTC?

Accepted Answer

Yes, most companies include gratuity as part of your CTC. It is calculated at 4.81% of basic salary (approximately ₹Basic × 15 / 26 per year).

Question 5

What happens to gratuity if I leave before 5 years?

Accepted Answer

If you leave before completing 5 years of service, you are generally not entitled to gratuity under the Payment of Gratuity Act, 1972.

Question 6

How is gratuity different from PF?

Accepted Answer

PF is a monthly contribution by both employee and employer, while gratuity is a lump-sum payment by the employer upon exit after 5 years. PF can be withdrawn partially, gratuity cannot.

Question 7

Can gratuity exceed ₹20 lakhs?

Accepted Answer

The tax-exempt limit for gratuity is ₹20 lakhs. Any amount above this is taxable. However, the actual gratuity calculated can exceed this limit.

Question 8

Is gratuity calculated on basic or gross salary?

Accepted Answer

Under the Payment of Gratuity Act, gratuity is calculated on last drawn basic salary plus dearness allowance, not on gross salary or CTC.

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