Question 1

Who is eligible for gratuity?

Accepted Answer

Employees who have completed 5 or more years of continuous service with an employer covered under the Payment of Gratuity Act are eligible — with an exception for death or disablement, where the 5-year requirement is waived.

Question 2

Why does the formula divide by 26 instead of 30?

Accepted Answer

For employers covered under the Payment of Gratuity Act, the calculation assumes a 26-working-day month (excluding 4 Sundays), which is the statutory convention — not because gratuity is paid for fewer than 30 days of the month.

Question 3

Is gratuity taxable?

Accepted Answer

For employees covered under the Act, gratuity is tax-exempt up to ₹20,00,000 (the current statutory ceiling). Any amount received above this limit is added to your taxable income and taxed at your applicable slab rate.

Question 4

How are years of service rounded?

Accepted Answer

Under the Act, if you've completed more than 6 months in your final year of service, it's rounded up to a full year for gratuity calculation purposes; 6 months or less is typically not counted.

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