Gratuity in India: Eligibility, Calculation and How to Claim

1. Introduction

Gratuity is a lump-sum payment your employer owes you for long service — and it is a statutory right, not a favour. This guide explains, in simple language, who qualifies, how the amount is calculated, and what to do if an employer refuses to pay.

2. Who should read this?

• Employees resigning or retiring after around five years of service.
• Anyone whose employer has refused or delayed gratuity payment.
• Families claiming gratuity after an employee's death.

3. What the law says

• The Payment of Gratuity Act, 1972 applies to establishments with 10 or more employees, including factories, shops, and most companies.
• An employee generally becomes eligible after completing five years of continuous service, on resignation, retirement, superannuation, or termination — the five-year condition does not apply where employment ends due to death or disablement.
• The statutory formula for covered employees is: last drawn salary (basic plus dearness allowance) × 15/26 × number of completed years of service, where 26 represents working days in a month and 15 days' wages are payable per year.
• Employers must pay gratuity within 30 days of it becoming payable; delay attracts simple interest for the delayed period.
• Gratuity received is exempt from income tax up to the prescribed statutory ceiling (₹20 lakh for most employees), with amounts above that being taxable.
• Gratuity can be forfeited wholly or partly only in specific circumstances, such as termination for wilful misconduct causing damage or an offence involving moral turpitude in the course of employment.

4. Step-by-step process

1. Step 1Confirm your eligibility and service length

   Check your date of joining and last working day; note that a part-year beyond six months is commonly counted as a full year.

2. Step 2Apply in writing to the employer

   Submit the prescribed gratuity application (commonly Form I) to your employer after your last working day.

3. Step 3Follow up on the 30-day deadline

   The employer must pay within 30 days; keep a written record of your application and any reminders.

4. Step 4Send a legal notice if unpaid

   A formal notice demanding payment with interest often resolves the matter without litigation.

5. Step 5Apply to the Controlling Authority

   If still unpaid, file a claim before the Controlling Authority under the Act (usually the Labour Commissioner's office), which can order payment with interest.

5. Documents required

• Appointment letter and relieving or resignation acceptance letter.
• Salary slips showing last drawn basic and dearness allowance.
• Proof of date of joining and last working day.
• Copy of the gratuity application submitted to the employer.
• Nomination form and death certificate, where claimed by legal heirs.

6. Fees and government charges

• There is no fee to apply to your employer for gratuity.
• Proceedings before the Controlling Authority are inexpensive; advocate fees are optional.

Fees vary by state and change over time; treat these as general pointers, not exact figures.

7. Expected timeline

The employer must pay within 30 days of gratuity becoming due. If you have to approach the Controlling Authority, resolution commonly takes a few months depending on the office and whether the employer contests.

8. Common mistakes to avoid

• Assuming gratuity is discretionary or part of a negotiable settlement — it is a statutory entitlement.
• Signing a full-and-final settlement that omits gratuity without noticing.
• Not submitting a written application, leaving no record of the claim.
• Calculating on total CTC instead of basic plus dearness allowance.
• Letting years pass before raising the claim.

9. Frequently asked questions

10. When you should consult a lawyer

• Your employer denies eligibility or disputes your service period.
• Gratuity has been forfeited on alleged misconduct grounds.
• The company has shut down or is insolvent.
• You need to claim gratuity as a legal heir.

11. How LawMitran can help