5. Eligibility and Conditions for Payment of Gratuity
Gratuity becomes payable after 5 years of continuous service when employment terminates due to:
(a) Superannuation
(b) Retirement
(c) Resignation
(d) Death
(e) Permanent disablement due to accident or disease
(f) Completion of a fixed-term employment contract
(g) Any other event notified by the Central Government. However, the requirement of five years of service is waived in cases of:
(a) Death
(b) Disablement
(c) Expiration of fixed-term employment
For working journalists, the qualifying period is 3 years instead of five.
6. Entitlement to Gratuity on Death of an Employee
In case an employee dies, gratuity is paid to the nominee designated by the employee. If no nomination exists, the gratuity is paid to the legal heirs. If the nominee or heir is a minor, the amount is deposited with the competent authority, which invests it for the minor’s benefit until the minor attains majority.
7. Computation of Gratuity
Gratuity is calculated at the rate of 15 days’ wages for every completed year of service. If the service period exceeds six months, it is treated as a full year.
7.1
For Monthly Rated Employees
Last drawn monthly salary Gratuity = × 15 × years of service 26
Note – Here, 26 represents the number of working days in a month.
10.1 Interest on Delayed Payment
If the employer fails to pay gratuity within 30 days, simple interest must be paid from the due date until the payment date, unless the delay is due to the employee’s fault and permission for delay has been obtained from the competent authority.
11. Disputes Regarding Gratuity
In case of dispute about the amount payable, eligibility, or the rightful recipient, the employer must deposit the admitted amount with the competent authority. The employer, employee, or any concerned person may apply to the competent authority to resolve the dispute.
After inquiry and hearing the parties, the competent authority decides the matter and directs payment of the amount due. During inquiry, the competent authority has powers similar to a civil court, including summoning persons, examining witnesses, and requiring documents.
11.1 Appeal Against the Order of the Competent Authority
Any person aggrieved by the decision of the competent authority may file an appeal within 60 days to the appropriate Government or designated authority.
An employer filing an appeal must first deposit the gratuity amount as required. The appellate authority may confirm, modify, or reverse the decision after hearing the parties.
12. Comparative Analysis of Payment of Gratuity Act, 1972 and Code on Social Security, 2020
The “50% Wage Rule” No such rule; employers often kept Basic low to reduce payout. If allowances exceed 50% of total pay, the excess is added to “Wages.”
Eligibility for Gratuity 5 years of continuous service. 5 years of continuous service remains unchanged.
Eligibility for FixedTerm Employees FTEs often received nothing. Payable on pro-rate basis.
Full & Final Settlement
Within 30 days of the last working day.
Within 2 working days of termination/resignation (as per Wage Code).
Gratuity Insurance
Nomination Process
Optional/Limited (State-specific notifications).
Required, but often neglected.
13. Conclusion
Mandatory for all private employers to have insurance/approved fund.
Mandatory filing within 30 days of completing 1 year of service.
Gratuity is an essential pillar of employee welfare and social security in India. The Code on Social Security, 2020, modernises and consolidates the legal framework governing gratuity, ensuring greater clarity, broader coverage, and improved protection for employees.
By introducing provisions such as pro-rata gratuity for fixed-term employees, compulsory gratuity insurance, and standardised wage definitions, the Code strengthens workers’ financial security and enhances employers’ compliance responsibilities. As the labour law landscape evolves, understanding the provisions relating to gratuity becomes crucial for both employers and employees to ensure proper implementation and protection of rights.
A Glimpse of the People Behind Taxmann
Naveen Wadhwa Research and Advisory [Corporate and Personal Tax]
Chartered Accountant (All India 24th Rank)
14+ years of experience in Income tax and International Tax
Expertise across real estate, technology, publication, education, hospitality, and manufacturing sectors
Contributor to renowned media outlets on tax issues
Vinod K. Singhania
Expert on Panel | Research and Advisory (Direct Tax)
Over 35 years of experience in tax laws
PhD in Corporate Economics and Legislation
Author and resource person in 800+ seminars
V.S. Datey
Expert on Panel | Research and Advisory [Indirect Tax]
Holds 30+ years of experience
Engaged in consulting and training professionals on Indirect Taxation
A regular speaker at various industry forums, associations and industry workshops
Author of various books on Indirect Taxation used by professionals and Department officials
S.S. Gupta
Expert on Panel | Research and Advisory [Indirect Tax]
Chartered Accountant and Cost & Works Accountant
34+ Years of Experience in Indirect Taxation
Bestowed with numerous prestigious scholarships and prizes
Author of the book GST – How to Meet Your Obligations', which is widely referred to by Trade and Industry
Manoj Fogla
Expert on Panel | Research and Advisory [Charitable Trusts and NGOs]
Over three decades of practising experience on tax, legal and regulatory aspects of NPOs and Charitable Institutions
Law practitioner, a fellow member of the Institute of Chartered Accountants of India and also holds a Master's degree in Philosophy
PhD from Utkal University, Doctoral Research on Social Accountability Standards for NPOs
Author of several best-selling books for professionals, including the recent one titled 'Trust and NGO's Ready Reckoner' by Taxmann
Drafted publications for The Institute of Chartered Accountants of India, New Delhi, such as FAQs on GST for NPOs & FAQs on FCRA for NPOs.
Has been a faculty and resource person at various national and international forums
the UAE
Chartered Accountant (All India 36th Rank)
Has previously worked with the KPMG
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