Government Of India has launched various schemes that benefit the poor and the old. One such scheme is Gratuity. It is basically an after retirement scheme which, if followed the rules, is completely tax-free. Many people don’t fully understand it, therefore, I’ll explain every detail that you should know about gratuity in this article.



This is a very obvious question that what exactly is Gratuity? Let me answer it from below points:

  1. It is basically a lump sum amount that an employer pays his employee.
  2. The employer pays this gratuity to his employee either at the time of his retirement or when the employee leaves the job.
  3. Gratuity can be described as an award that is given to the employee for his service to the company.
  4. Gratuity is a defined benefit plan which is completely dependent on the last salary that is drawn by the employee as well as his tenure of service.

Eligibility For Gratuity

  1. A minimum of 5 years of service is mandatory for an employee to get gratuity.
  2. 6 months or more of service is rounded off to 1 year during calculation of gratuity amount.
  3. Therefore, in case you have done more than 4 years and 6 months of service, you are eligible for gratuity.
  4. You are allowed certain interruptions through “continuous service”.
  5. These interruptions can be leaves, accident, health issues, strikes etc.
  6. Therefore, interruptions that are caused by the fault of an employee will be considered a break in his service.

The Rules For Gratuity

There are many rules for gratuity, they are as follows:

Number of Employees

  • A minimum of 10 employees should be working for the employer to give them the gratuity.
  • This number of employees is calculated by taking the average of last 12 months.
  • Gratuity is applied to both government and private sector employees.

After Employee has discontinued the Job

  • The employer only has to give gratuity after an employee has been discontinued from his job.
  • This discontinuation in the job could be because the employee has retired or has left the job.

In Case of Death or Disablement

  • In such a case, the minimum 5-year service rule isn’t applicable.
  • The gratuity amount is paid to the nominee or legal heir of the deceased employee.

Gratuity is Protected against all Liabilities

  • No court can attach this gratuity amount in any case of a decree against an employee.
  • This is applicable for all types of courts, be it civil or criminal.

Gratuity Forfeit

  1. If the company faces loss due to an employee then the employer is entitled to forfeit his gratuity.
  2. The forfeited gratuity amount is utilized to compensate the loses that the company endured.
  3. But to do so, the employer has to terminate the employee from all his services.

I’ve written a detailed article “Gratuity Calculation Formula And Know How to Calculate Gratuity in India” that will explain to you how gratuity is calculated and what are the conditions in which it is tax-free, so do go through it.

For further queries or suggestions, do leave a comment below.

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