Question 1

What is gratuity?

Accepted Answer

Gratuity is a one-time monetary benefit paid by employers to employees as a token of appreciation for long service. In India, it is governed by the Payment of Gratuity Act, 1972 and is payable upon resignation, retirement, or death.

Question 2

Who is eligible for gratuity?

Accepted Answer

Employees who have completed at least 5 years of continuous service with the same employer are eligible for gratuity. For death or disability, the 5-year requirement is waived.

Question 3

How is gratuity calculated?

Accepted Answer

Gratuity = (Last drawn salary × 15/26 × Number of years of service). Last drawn salary includes basic pay + dearness allowance. 26 is the number of working days in a month; 15 is the gratuity rate in working days.

Question 4

Is gratuity taxable?

Accepted Answer

For government employees, gratuity is fully tax-exempt. For private sector employees, gratuity is exempt up to ₹20 lakh (revised in 2018). Amount above ₹20 lakh is taxable at applicable slab rates.

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