Gratuity
Also called: gratuity payment
What is Gratuity?
Gratuity is a lump sum payable to an employee on leaving after completing the qualifying period of continuous service, generally five years. It is calculated on last drawn basic pay plus dearness allowance and years served.
Why Gratuity matters
Gratuity accrues silently from the first year and lands as a large payment years later. Businesses that never provide for it are hit by the whole amount at once, usually when several long-serving staff leave together.
Gratuity formula
Gratuity = Last drawn basic plus DA × 15 ÷ 26 × Completed years of service
Fifteen days of wages for each completed year, using a 26-day month.
How Gratuity works in practice
Provide for the accruing liability annually rather than treating it as a surprise. In restaurants and retail, where long tenures are common among core staff, the accumulated liability can be substantial.
Worked example
₹30,000 last drawn basic after 7 years gives roughly ₹1,21,000.
Frequently asked questions
The qualifying period is generally five years of continuous service, with exceptions such as death or disablement.