Gratuity Rules in India 2025: Eligibility, Calculation & Claims

Gratuity in India: What’s the Big Deal?

Gratuity isn’t just a bonus—it’s your well-earned “thank you” for sticking with your employer for years. If you’ve ever wondered why your parents or colleagues talk about it like it’s a big deal, it’s because it genuinely is. It’s a lump sum that lands in your account when you retire, switch jobs after a long stint, or, God forbid, something happens to you and your family needs support.

Why Should You Care?

Because, at the end of the day, this is money you’ve earned. It’s not a favor. It’s your right. For many, gratuity is what helps them start a small business, pay for a child’s wedding, or simply enjoy retirement without worrying about bills.

Who Gets Gratuity? (And Who Doesn’t)

So here’s the deal: if you’ve worked for the same company for at least five years (without major breaks), you’re in. It doesn’t matter if you’re a manager, a factory worker, or a shop assistant—if your company has at least 10 employees, you’re covered under the Payment of Gratuity Act, 1972.

But there are exceptions! If you pass away or become disabled, your family gets the gratuity, even if you haven’t hit that five-year mark. And yes, your maternity leave, paid leave, and even time off due to a workplace accident all count as “service.”

The Law Has Changed—Here’s What’s New

Let’s talk about the big update: In 2018, the government doubled the maximum gratuity you can get from ₹10 lakh to ₹20 lakh. That’s huge, especially for private sector folks. Plus, there’s a built-in inflation guard—if the Dearness Allowance (DA) increases by 50%, the gratuity cap goes up by 25%. So, your gratuity keeps up with rising costs (Ministry of Labour and Employment, Govt. of India).

How Much Will You Get? Let’s Crunch the Numbers

No one likes math, but this is important. Here’s the simple formula if you’re covered by the Act:

Gratuity = Last drawn salary (basic + DA) × (15/26) × Years of service

If you’ve worked more than six months in your final year, round up.
For those not covered by the Act, it’s half a month’s average salary for each completed year (no rounding up).

Let’s say Anil worked for 13 years and 7 months at a textile mill, and his last salary was ₹35,000 (basic + DA). His gratuity would be: ₹35,000 × (15/26)× 14 = ₹2,82,692

Is Gratuity Taxable?

Government employees: You’re in luck. 100% tax-free.
Private sector (Act-covered): Tax-free up to ₹20 lakh or the actual amount received, whichever is less.
Others: Exemption up to half a month’s average salary for each completed year or ₹10 lakh, whichever is lower.

If your family receives gratuity after your passing, it’s taxed differently—but there’s relief under Section 89(1) if the amount is big.

How Do You Get Your Gratuity?

Your employer should pay you within 30 days of leaving. If they delay, they owe you interest.
You don’t need to panic if you forget to apply. There’s no expiry date for your claim.
Fill out the right form (usually Form I), and make sure you nominate your beneficiaries (Form F). If you don’t, your legal heirs will have to jump through more hoops.

What If There’s a Dispute?

If your boss tries to play hardball, don’t worry. You can approach the “controlling authority” (usually a government labor officer). If things don’t get sorted, you can appeal further. And here’s the cool part: the Ministry of Labour’s SAMADHAN portal lets you file complaints online—no lawyer needed, no fees.

Can You Lose Your Gratuity?

Yes, but only in rare cases—like if you damage company property, get fired for violence, or commit a crime at work. Even then, there are checks and balances, and you can always appeal.

Real Example: Not Just Theory

Take the case of Sunita, who worked for a pharmaceutical company in Pune for 16 years. She was laid off due to restructuring. Her employer delayed the gratuity payment. Sunita filed a complaint on the SAMADHAN portal and got her dues paid with interest within two months. No drama, just knowing her rights and using the tools available.

Don’t Forget These Pointers

Gratuity is your right, not a company favor.
The 2018 amendment doubled the gratuity cap and added inflation protection.
Service includes paid leave, maternity, and even layoffs.
Employers must pay within 30 days or pay interest.
No time limit to claim your gratuity.
Use the SAMADHAN portal for quick dispute resolution.
Always nominate your beneficiaries to save your family future trouble.