Definition
Gratuity Eligibility
Gratuity eligibility under Indian law generally requires five years of continuous service with an employer, with exceptions for death or disablement where the rule is waived.
Gratuity eligibility under the Payment of Gratuity Act usually arises after five years of continuous service with the same employer. Continuous service includes periods of authorised leave, and certain interruptions do not break it.
The five-year condition is waived if employment ends due to death or disablement, in which case gratuity is payable to the employee or nominee regardless of tenure. Disputes can arise over what counts as continuous service for those just short of five years.
Eligible employees receive gratuity as part of their full and final settlement, with the amount computed on last-drawn basic plus DA and years of service, and exempt from tax up to the prescribed ceiling.
Related terms
- GratuityGratuity is a lump-sum payment an employer gives an employee for long service, generally payable after completing five years, with tax exemption up to a prescribed limit.
- Leave EncashmentLeave encashment is payment received for accumulated unused leave, typically at retirement or resignation, with specific tax exemptions for certain employees.
- Full and Final SettlementFull and final settlement (F&F) is the process of clearing all dues between employer and employee when employment ends, netting off salary, benefits and recoveries.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.