Gratuity is a monetary benefit given by the employer to his employee at the time of retirement.

Gratuity is a sum of money paid to an employee by the employer for the services rendered to the company. However, gratuity is
paid to only employees who have completed 5 years or more in the company. Gratuity is an important form of social security
provided by the employer in monetary terms for the services rendered to the organization.

• An organisation will come under the purview of the Act if it has 10 or more employees on any single day in the preceding 12
months.

• Even if the organisation has less than 10 employees, the law does not restrict the employer from paying gratuity to his
employees.
To be eligible for gratuity under the Gratuity Act, an employee needs to have at least five full years of service with the current
employer, except in the event that an employee passes away or is rendered disabled due to accident or illness, in which
casegratuity must be paid.

Who is eligible for receiving gratuity?

There are a few instances that mark the eligibility for gratuity for an employee.
An employee retires after completing 5 years of working with the same organization.
An employee resigns after 5 years of working with the same organization.
An employee passes away or suffers disability due to illness or an accident .
How is gratuity calculated?
Gratuity is dependent upon the total number of years served in the company and the last drawn salary.
If A is (number of years of service in a company) + B is (last drawn salary) {Basic Salary+ Dearness Allowance}
Then, Gratuity = A*B*15/26 ; 15 being wages for 15 days and 26 being the days of the month.
For example – Ankit has worked for QC Associates for 10 years and his last drawn salary (Basic + Dearness Allowance) is Rs
30,000.

Hence Ankit’s gratuity amount would be – 10*30,000*15/26 = Rs 1,73,076

Suppose A's last drawn basic pay is Rs 60,000 per month and he has worked with XYZ Ltd for 20 years and 7 months. In this case,
using the formula above, gratuity will be calculated as:
(15 X 60,000 X 21)/26 = Rs. 7.26 lakh

In the above case, we have taken 21 years as tenure of service because A has worked for more than 6 months in year. Had he
worked for 20 years and 5 months, 20 years of service would have been taken into account while calculating the gratuity
amount.
Can an employee claim Gratuity before his/her completion of 5 years?
An employee can claim gratuity before completion of 5 years only in two instances i.e occurrence of death or occurrence of
disability due to illness or accidents. In the instance of Death the claim would be transferred to the assigned nominee.

Is Gratuity taxable?
Taxability of gratuity is dependent on which sector does the employee belong to. Gratuity amount is not taxable in case of
government employees. Non-government employees can also get a Tax exemption on their gratuity amount. Although, there is
an upper limit of Rs 20 lakhs for the tax concessions.
Is there a cap to the amount I receive as gratuity?
Yes, the employer cannot pay you more than Rs 20 lakhs irrespective of the number of years you have completed. This limit is
also applicable to gratuity you would receive from different employers during your lifetime.
 EMPLOYER'S RIGHT TO FORFEITURE

Section 4 (6) of the Act permits an employer to forfeit gratuity payable to an employee in the certain circumstances. As per the
said provision:

The gratuity of an employee, whose services have been terminated for any act, willful omission or negligence causing any
damage or loss to, or destruction of, property belonging to the employer' shall be forfeited to the extent of the damage or loss so
caused.

The gratuity payable to an employee may be wholly or partially forfeited (i) if the services of such employee have been
terminated for his riotous or disorderly conduct or any other act of violence on his part, or (ii) if the services of such employee
have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is
committed by him in the course of his employment.