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Is a lump sum amount paid to the employee at the time of exit if he/she completes 5 or more years of continuous service.

Few more points related to Gratuity

  • Gratuity should be paid to nominee if an employee expires while working and without the need to complete 5years of service
  • The probation period is included while calculating eligibility for gratuity
  • The employee will not receive Gratuity even if 5years of service is completed if the company fired the employee and the same is mentioned in the termination letter with proper reason.
  • But if an employee is given pink slip and termination letter as good conduct then the employee is eligible for gratuity if 5years service is completed
  • To be more precise, a continuous service of 4yrs and 240days is required to be eligible for Gratuity but everyone thinks that it is 5years which is not true.
  • If a company changes name without a change in management and for employees there is no need to resign and join on a new company name. Then Gratuity is applicable from the date of joining the old company
  • Gratuity for govt employees received at the time of retirement is tax-free
  • Gratuity for non-govt. people are capped at 10lacs for the entire life.

So 10lacs is tax-free from N number of employers and anything above it is subject to tax

  • Actually Gratuity is a TiP just like we give tip to a waiter or watchman or driver.
  • Gratuity depends upon in Basic and Dearness Allowance and the calculation formula is

Gratuity = ((Basic+DA) *15 * no. Of years) /26

No. Of years is an integer, which means if a person works ina company for 8 years and 10 months then for calculation of gratuity 10 months is ignored and only 8 years is considered

  • Gratuity is not pension and it is not related to pension.

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