Gratuity in India: Rules, Calculation & Tax Guide 2026

Gratuity in India: Rules, Calculation & Tax Guide 2026

Gratuity calculation in India trips up more payroll teams than PF, professional tax and TDS combined. The formula is one line. Everything around it is where money leaks: who is covered, what "continuous service" means, which salary components count, when a partial year rounds up, how much to provision monthly, and how the payout is taxed.

This guide is for HR managers, founders and payroll teams in Indian SMBs and startups. It covers the Payment of Gratuity Act, 1972, the 15/26 formula with worked examples, funding and provisioning, forms and timelines, tax logic, and the mistakes that turn a routine settlement into a dispute. One caveat: this is general guidance, not legal advice. Ceilings, interest rates and tax limits change by government notification, so verify current figures against the latest notification before running payroll on them.

What Gratuity Is and Why It Exists

Gratuity is a lump sum an employer pays for long service, payable when the employee leaves. It is not a bonus and not negotiable at offer stage. Where the Act applies, it is a statutory debt that crystallises on separation.

The policy logic: India's formal social security net for private-sector workers is thin. PF builds a corpus from joint contributions; gratuity puts the whole cost on the employer and rewards the employee purely for staying. Three consequences follow:

• It is unfunded by default. Unless you actively fund it, the obligation accrues silently and lands as lumpy, unpredictable cash outflow.
• It grows faster than tenure. The calculation uses last drawn wages, so every salary increase retroactively inflates all past years of service.
• It is easily enforced. A denied employee does not sue in civil court; they file with the Controlling Authority, which is fast and inexpensive.

Who Is Covered: Applicability of the Act

The Payment of Gratuity Act, 1972 applies to:

• Every factory, mine, oilfield, plantation, port and railway company.
• Every shop or establishment under the applicable state Shops and Establishments law in which ten or more persons are employed, or were employed, on any day in the preceding twelve months.
• Other establishments the central government notifies.

Two features catch SMBs out.

"Ten or more persons" counts persons employed, not employees who individually qualify. Probationers, trainees who are employees in substance, and part-timers on the rolls all count.

Coverage is sticky. Once the Act applies it continues to apply even if headcount later falls below ten. A 14-person startup that shrinks to seven does not exit the Act. This usually surfaces years later, when a long-tenured employee resigns.

Establishments below the threshold may still pay gratuity, and many do because the offer letter or HR policy promises it. Be deliberate: a contractual commitment is enforceable even where the statute would not apply, and you should provision for it accordingly.

Eligibility and the Five-Year Continuous Service Rule

Gratuity is payable on termination of employment after continuous service of not less than five years. "Termination" is broad: resignation, retirement, superannuation, and employer-initiated termination, subject to the forfeiture rules below.

The Death and Disablement Exception

The five-year requirement does not apply where employment ends due to death or disablement from accident or disease. If an employee dies in year two, gratuity is payable for the service rendered. No minimum tenure gate.

This is where employers most often fail their people, usually because the payroll system's eligibility rule is a hard-coded five-year check nobody revisited. Two operational points:

• On death, payment goes to the nominee recorded in Form F, or to legal heirs where there is no nomination. Where the nominee is a minor, the amount is handled as prescribed under the rules, typically by deposit with the Controlling Authority.
• "Disablement" means incapacity for the work the employee was doing before the accident or disease. It is a functional test, not an insurance-style percentage test.

The Four-Years-and-Change Question

Does four years and seven months qualify?

The Act's rounding rule counts a period in excess of six months as a full year, but that rule computes the amount once eligibility exists. Eligibility itself requires five years, so the plain reading is no.

The position is not uniform. Some High Courts have held that four years plus 240 days in the fifth year attracts the deemed continuous service provisions, so gratuity becomes payable; other benches read the requirement strictly. There is no settled national answer. In practice, take a written position and apply it consistently, check the view of the High Court with jurisdiction over your establishment, and remember that a borderline case is cheap to settle and expensive to litigate.

What Counts as Continuous Service

"Continuous service" is defined, and it is more generous than most HR teams assume. Uninterrupted service is continuous service, and these do not break continuity:

• Sickness, accident, authorised leave
• Absence without leave, where it was not treated as a break under your standing orders, rules or contract
• Lay-off, or a strike or lock-out that is not illegal
• Cessation of work not due to the employee's fault

The Act also deems continuous service where the employee was not in uninterrupted service. Broadly, an employee is deemed in continuous service for one year if, in the preceding twelve months, they actually worked at least 240 days, or 190 days if employed below ground in a mine or in an establishment working less than six days a week. For six-month periods the thresholds are 120 and 95 days. "Days actually worked" includes lay-off days, leave with full wages earned in the previous year, absence due to temporary disablement from an employment injury, and prescribed maternity leave.

What this means in practice:

• Loss-of-pay days are not automatically breaks. Test a long unpaid sabbatical against your own rules; if you never treated it as a break, you cannot recharacterise it at exit.
• Intra-group transfers need documentation. Where an employee moves between group entities with continuity expressly preserved in writing, the receiving entity takes on the accrued liability. If you do not intend that, settle gratuity at transfer and restart the clock. Silence is read in the employee's favour.
• Rehires are not continuous. An employee settled in full who rejoins nine months later starts fresh, unless you agree otherwise.

The Gratuity Formula: 15/26 Explained

For employees covered by the Act and paid monthly:

Gratuity = (Last drawn wages ÷ 26) × 15 × Completed years of service

• Last drawn wages means emoluments earned on duty or on leave, payable in cash, including dearness allowance. It excludes bonus, commission, HRA, overtime and other allowances. In most Indian structures this is Basic + DA.
• ÷ 26 treats a month as 26 working days, assuming four weekly offs. This is the statutory convention, not an accounting choice.
• × 15 is fifteen days' wages per completed year.
• Completed years, with any period in excess of six months counted as a full year.

So 15/26 is half a month's wages on a 26-day month per year of service, roughly 57.7% of a month's Basic + DA annually.

Rounding: 5 years 6 months counts as 5 (six months exactly is not "in excess of"), 5 years 7 months counts as 6, and 9 years 11 months counts as 10. Rounding down where the law rounds up is a shortfall you will pay interest on.

Worked Example 1: Monthly-Rated Employee

Priya resigns after 8 years 8 months, with last drawn Basic ₹52,000 and DA ₹8,000. All figures illustrative.

• Wages = ₹60,000; completed years = 9 (8 months exceeds six)
• Per-day wage = ₹60,000 ÷ 26 = ₹2,307.69; fifteen days = ₹34,615.38
• Gratuity = ₹34,615.38 × 9 = ₹311,538, subject to the statutory ceiling in force

Worked Example 2: Same CTC, Different Structure

Rahul has the same CTC and the same 8 years 8 months, but Basic is ₹30,000 with no DA and the rest sits in HRA, special allowance and reimbursements. Gratuity = (₹30,000 ÷ 26) × 15 × 9 = ₹155,769.

Identical CTC, half the gratuity. Salary structuring drives gratuity cost, which is why the labour codes' wages definition matters so much.

Worked Example 3: Seasonal Establishment

Where an establishment is seasonal and the employee is not employed throughout the year, the rate is seven days' wages per season, not fifteen days per year.

An employee at a sugar processing unit has worked six seasons at last drawn wages of ₹18,200 per month. Per-day wage is ₹700, seven days is ₹4,900, so gratuity = ₹4,900 × 6 = ₹29,400. Where a seasonal-establishment employee works throughout the year, the normal fifteen-day rule applies instead.

Employees Not Covered by the Act

Where gratuity is paid contractually outside the Act, the common convention is (Last drawn salary ÷ 30) × 15 × Completed years, with no statutory rounding. Your policy document controls, so write down the components used, the rounding treatment and the eligibility tenure. Ambiguity here is a reliable source of disputes.

The Statutory Ceiling: Verify the Current Number

The Act caps gratuity payable to an employee. That ceiling is not a permanent figure in the statute; the central government notifies it, and it has been revised upward several times since 1972.

We are deliberately not printing a rupee figure; a stale number in an article becomes a payroll error in someone's system. Check the latest notification for the ceiling in force, and hold it in payroll as a date-effective parameter rather than a hard-coded constant. Three points hold regardless of the value:

1. It caps the statutory entitlement, not what you may pay. Employers can pay more under a contract, award or settlement, and amounts above the exempt limit are simply taxable as salary.
2. For exemption, the notified limit is a lifetime aggregate, so employees paid gratuity by an earlier employer have less exemption left. Collect a declaration.

How the Labour Codes Change Gratuity Cost

India's four labour codes consolidate central labour legislation, and gratuity sits within the Code on Social Security, 2020 framework. Implementation has moved in stages across the centre and the states, with rules finalised at different times. Confirm the current commencement position and applicable rules for your state before changing payroll.

For cost modelling, the decisive change is the definition of "wages". The codes adopt a common definition: wages include basic pay, dearness allowance and retaining allowance, and exclude a specified list covering HRA, conveyance, overtime, commission and statutory bonus. The critical part is the balancing rule. Where excluded components exceed a prescribed proportion of total remuneration, commonly framed as 50%, the excess is added back to wages.

For a company with a typical 30-40% Basic structure, that raises the wage base for gratuity, PF, bonus and leave encashment at once.

Computed as (wages ÷ 26) × 15.

The uplift is material. For a 200-person company, a two-thirds increase in the accrual rate hits reported profit in the transition year and cash flow thereafter. What to do now:

1. Run a wage-base impact analysis across the full salary master, not a sample.
2. Recalculate the actuarial liability on the revised base and share it with your auditor early.
3. Model CTC neutrality. Raising Basic lifts employer PF and gratuity; holding CTC flat cuts take-home pay, an employee-relations problem, not just a spreadsheet one.
4. Revisit funding, since trust contribution schedules and group policy premiums will need adjusting.

Fixed-Term Employees and Pro-Rata Gratuity

Fixed-term employment is a recognised category in Indian labour law, and the social security framework provides that a fixed-term employee is entitled to gratuity on a pro-rata basis even where the term is shorter than five years. That is a real change in exposure for companies using fixed-term contracts for projects, seasonal ramps or trial hiring.

• A two-year fixed-term employee whose contract is not renewed can be entitled to gratuity for those two years, pro rata.
• Successive fixed-term contracts without a genuine break are usually read as continuous service.
• The label cannot be used to deny statutory benefits. If a role is permanent in substance, "fixed term" will not hold.

The exact contours depend on rules notified in your state and on your contract terms, so confirm with counsel. The direction is not in doubt: the blanket "no gratuity under five years" assumption no longer applies universally. Model it from day one. At illustrative numbers, a two-year hire at ₹40,000 wages accrues roughly (₹40,000 ÷ 26) × 15 × 2 = ₹46,154 of liability many companies carry unrecognised.

Contract Staff and Third-Party Payroll

A frequent SMB question: fifteen people work in our office through a manpower agency, so do we owe them gratuity?

Generally the direct employer pays. Where workers are on a contractor's or staffing agency's payroll, that entity is the employer for gratuity purposes, assuming it is itself covered by the Act. That is not the end of the analysis:

• Sham arrangements collapse. If you control hiring, supervision, discipline and work allocation while the "contractor" is a payroll conduit, an authority can look through the arrangement.
• Long-tenured contract staff are the risk. A housekeeping supervisor at your premises for nine years across three agency contracts is a claim waiting to be made.
• Contract explicitly. State that the agency is employer of record, is responsible for gratuity, will maintain records, and indemnifies you. Ask for proof of compliance, not just a clause.

Nomination and the Forms Flow

Under the Payment of Gratuity (Central) Rules, 1972 and equivalent state rules, administration runs on prescribed forms. Verify the exact forms and timelines for your state, as state rules vary.

Getting Nomination Right

Nomination is the cheapest piece of gratuity hygiene and the one most often skipped.

• Collect Form F once an employee completes one year. Build it into the one-year anniversary workflow, not onboarding, since the right to nominate attaches on completing a year.
• Nomination must be in favour of family members if the employee has a family; one made outside the family while a family exists is void. An employee who had no family then and acquires one later must file a fresh nomination.
• Where several nominees are named, specify each share, and refresh nominations after marriage, childbirth, divorce or bereavement.
• Store them retrievably. A signed form in a cabinet at an office you no longer occupy is not a record.

Claim to Payment, Step by Step

1. Gratuity becomes payable on termination, whether or not the employee applies.
2. The claimant applies using Form I, J or K.
3. The employer determines the amount and issues Form L stating the amount and payment date within the prescribed period, or Form M with reasons if the claim is not admissible.
4. The employer pays within the statutory timeline.
5. On rejection, non-payment or a dispute over quantum, the claimant files Form N with the Controlling Authority.
6. The Authority inquires, can summon evidence and issues a direction. An appeal lies to the Appellate Authority, and an appealing employer must generally deposit the amount for the appeal to be entertained.

The obligation to pay does not depend on the employee filing a form. Sitting on a known liability waiting for a written application only accrues interest exposure.

Payment Timelines and Interest on Delay

Gratuity must be paid within 30 days from the date it becomes payable. Beyond that, the Act provides simple interest on the delayed amount from the due date to the date of payment, at the rate notified by the central government for repayment of long-term deposits. Confirm the current notified rate before computing any interest liability.

There is a narrow carve-out where the delay is the employee's fault and the employer has written permission from the Controlling Authority, but it is rarely available because employers almost never seek that permission in advance. Timeline management:

• Trigger the computation on resignation acceptance, not the last working day; you need the number before finalising the settlement.
• Do not hold gratuity hostage to notice disputes, asset returns or exit formalities. Withholding statutory dues as leverage is the fact pattern that produces an adverse order plus interest.
• Where the amount is genuinely disputed, pay the undisputed portion on time and contest the balance.
• For payments to a nominee after a death, move faster than the statutory clock.

Forfeiture: Narrow Grounds, Frequently Misapplied

Employers often assume gratuity can be forfeited for poor performance, abandonment, failure to serve notice or "leaving on bad terms". It cannot. The grounds are narrow. Gratuity may be forfeited:

(a) To the extent of damage or loss caused, where services were terminated for an act, wilful omission or negligence causing damage, loss or destruction of the employer's property. Forfeiture is capped at the quantum of damage, which you must evidence.

(b) Wholly or partially, where services were terminated for riotous or disorderly conduct or any other act of violence, or for an act constituting an offence involving moral turpitude committed in the course of employment.

Where employers slip:

1. There must be a termination. If the employee resigned, there is generally no misconduct termination on which to base forfeiture.
2. The termination must be for the specified ground. A letter citing "business restructuring" cannot be recharacterised later.
3. Due process is expected: charge sheet, domestic inquiry, opportunity to be heard, reasoned finding. A decision taken in a management meeting with no inquiry record rarely survives.
4. Moral turpitude must connect to the employment. An unrelated offence does not trigger this limb.
5. Damage-based forfeiture needs a quantified loss. "Reputational harm" is not a computable figure.

Even where forfeiture is available, weigh it commercially: contesting it puts your inquiry process and documentation in front of an authority.

Gratuity in Full-and-Final Settlement

Gratuity should be a distinct line in the F&F, not folded into a generic settlement total.

Rules of thumb:

• Do not net recoveries out of statutory gratuity. Recover from other dues or pursue separately.
• Issue Form L or an equivalent statement showing wages used, completed years, formula and amount. A one-page working prevents most disputes.
• Compute TDS correctly and reflect the exempt portion in Form 16; errors surface months later at ITR filing.
• Verify the nominee against Form F in death cases, and never condition payment on signing a release.

Income Tax Treatment of Gratuity

Gratuity is taxed under the salary head with an exemption available under the Income Tax Act. Exempt amounts and the notified limit change over time, so what follows is structural. Verify current limits before computing TDS.

Government employees. Gratuity received by central government, state government and local authority employees is fully exempt. No ceiling computation is needed.

Non-government employees covered by the Act. The exemption is the least of three amounts: the actual gratuity received; 15/26 × last drawn salary (Basic + DA) × completed years applying the six-month rounding rule; and the notified monetary limit in force. Anything above the least of these is taxable as salary in the year of receipt.

Non-government employees not covered by the Act. Same three-limb structure, different middle limb: half a month's average salary per completed year, where average salary is generally based on the last ten months preceding the month of leaving, and only fully completed years count.

Points that catch payroll teams out:

• The notified limit is a lifetime aggregate for exemption, so collect a declaration of prior gratuity received.
• Death gratuity received by legal heirs has its own treatment; take advice rather than defaulting to salary-head logic.
• Ex-gratia above the statutory entitlement is generally taxable in full. A loyalty bonus paid on top does not inherit the exemption.
• Split exempt and taxable portions in Form 16. This is the most common post-exit tax query.

Funding Gratuity: Three Models

Gratuity is an obligation you will certainly pay, at an unpredictable date, in an amount that grows with salary inflation. That is a funding problem with three broad answers.

1. Pay-as-you-go. You recognise a liability and pay from operating cash on exit. Nothing is locked up, but outflow is lumpy and the deduction comes in the year of payment rather than accrual. Suits very small teams.

2. Approved gratuity trust. An irrevocable trust approved under the Income Tax Act receives contributions, invests the corpus and pays on exits. Contributions are generally deductible within prescribed limits, the corpus is ring-fenced, and employees have security against employer insolvency. The cost is setup time, trustee governance and ongoing compliance.

3. Group gratuity insurance. A life insurer manages the fund and settles claims, often held through a trust. Administration, investment and usually actuarial valuation are outsourced, and a life-cover element can top up death-in-service payouts. Charges reduce returns and surrender terms need reading.

Deductibility conditions and limits for contributions to gratuity funds are specific; confirm the current position with your auditor before assuming a deduction.

Actuarial Valuation: What Auditors Want and Why

Under the applicable employee benefits accounting standard, gratuity is a defined benefit obligation. It cannot be measured by multiplying headcount by current salary; it has to be actuarially valued.

For every employee the actuary projects when they will leave (attrition), what their salary will be then (escalation), whether they will vest, the payout, and what that future payout is worth today using a discount rate referenced to government security yields. The output is the present value of the obligation plus current service cost, interest cost, benefits paid and actuarial gains and losses.

Auditors insist because the number is often one of the largest non-trade liabilities on an SMB balance sheet, turns heavily on judgement, and carries disclosure requirements (assumptions, sensitivity analysis, movement reconciliation) that only a valuation report supplies.

The assumptions that move it most:

• Discount rate. A lower rate raises the present value, and it tracks bond yields, so the liability moves even with no change in workforce.
• Salary escalation. Because gratuity uses last drawn wages, higher escalation compounds across the projection.
• Attrition. Higher attrition cuts the liability, since many employees leave before vesting. High-churn businesses carry surprisingly small liabilities; a maturing workforce sees the number rise sharply.

Give the actuary clean data (joining dates, current Basic + DA, dates of birth, correct treatment of past-service transfers) and commission the valuation before year-end close, not during the audit.

A Provisioning Worked Example

Actuarial valuation is annual; for monthly management accounts you also want a simple internal accrual. Illustrative figures for an eight-person company:

Accrual per year = (Basic + DA ÷ 26) × 15.

Reading it:

• Gross accrued liability is about ₹10.25 lakh, what you would owe if everyone were vested and left today.
• Annual run rate is about ₹2.37 lakh, roughly ₹19,700 a month to set aside if funding.
• Vested versus unvested matters. E through H are under five years, so their accruals are not payable on resignation, though they would be on death or disablement. An actuary applies attrition probabilities; accruing from year one is more conservative.
• Salary growth compounds it. If A's Basic rises 10%, the liability for all seven past years rises with it, because the formula uses last drawn wages.

A reasonable SMB approach: accrue monthly from date of joining at the current wage base, add an 8-10% escalation buffer, and reconcile annually to the actuarial number.

Common Gratuity Mistakes: A Checklist

Run this against your own payroll. Most companies find at least two.

• Hard-coding the ceiling instead of using a date-effective parameter
• Blocking payment for under-five-year employees who died or became disabled
• Rounding service down instead of applying the six-month rule
• Including HRA or special allowance in the statutory wage base, or excluding DA
• Assuming coverage lapses when headcount drops below ten
• Never collecting Form F, leaving death cases without a valid nomination
• Withholding gratuity pending asset return, notice shortfall or a signed release
• Forfeiting for performance, abandonment or "leaving badly", none of which are statutory grounds
• Forfeiting with no termination, no inquiry record or no quantified loss
• Missing the 30-day window, then not computing interest, or ignoring continuity of service on intra-group transfers
• Applying 15/30 instead of 15/26 for employees covered by the Act
• Wrong TDS, from missing prior-employer declarations or treating ex-gratia as exempt
• Valuing the liability only at audit time, or not provisioning at all

Gratuity Records and the Register

Record-keeping is where a gratuity dispute is won or lost. When a claim reaches the Controlling Authority, the burden of demonstrating the computation and the fact of payment sits with the employer. Maintain, per employee:

• Dates of joining and leaving, with appointment and relieving letters
• A continuous-service record covering loss of pay, lay-off, strikes, transfers and rehires
• Salary history, specifically Basic and DA with effective dates for every revision
• Form F, plus any Form G or H, dated and signed
• The computation working: wages used, completed years, formula, ceiling applied
• Applications received and notices issued, with proof of despatch
• Proof of payment with bank reference and date, plus the TDS computation
• Any forfeiture decision, with inquiry record, findings and loss quantification

At establishment level, keep the notices filed with the Controlling Authority, the displayed abstract, and fund or policy documentation. Retain all of it well beyond exit; claims surface years later, particularly from long-tenured staff and families of deceased employees.

How an HRMS Automates Gratuity

Most failures above are process failures, not knowledge failures, caused by gratuity living in a spreadsheet one person maintains. A payroll system removes that fragility.

• Eligibility tracking. Automatic vesting checks on accurate service data, alerts for employees nearing five years, and a death and disablement override instead of a blanket tenure filter.
• Correct wage base and parameters. Eligible components configured once at salary-structure level so every calculation picks up Basic + DA and nothing else, with the ceiling and interest rate held as date-effective values. A notification becomes a one-field update; a labour codes restructure changes configuration, not fifty spreadsheets.
• Consistent formula application. The 15/26 convention, six-month rounding and seasonal variants applied uniformly, with an auditable working per employee.
• Provisioning. Month-end accrual by employee and cost centre, vested versus unvested split, and an export in your actuary's format.
• Nomination workflows. Form F prompts at the one-year anniversary, digital capture, refresh reminders, and a dashboard of missing nominations.
• Exit, F&F and audit trail. Gratuity computed on resignation, flowing into the settlement as a separate line with the correct exempt-versus-taxable TDS split, the 30-day clock tracked, and every form, approval and payment stored with change history.

CozyHR is built for this: Indian statutory payroll for SMBs and startups, where gratuity, PF, ESI, professional tax and TDS run inside one payroll cycle instead of separate manual reconciliations.

FAQ

Is gratuity payable if an employee resigns before five years?

Generally no: five years of continuous service is required. The exceptions are death and disablement, where no minimum tenure applies. Fixed-term employees can also be entitled to pro-rata gratuity below five years, and some High Courts have held that four years plus 240 days in the fifth year qualifies. Confirm the position in your jurisdiction.

Which salary components are used for gratuity calculation in India?

For employees covered by the Act, wages means Basic plus Dearness Allowance; HRA, conveyance, overtime, bonus and commission are excluded. Under the labour codes' common wages definition, where excluded components exceed the prescribed proportion of total remuneration, the excess is added back, raising the base for many salary structures.

Can an employer refuse to pay gratuity if the employee did not serve notice?

No. Notice shortfall is a contractual matter and not a ground for forfeiting statutory gratuity. Recover notice pay from other dues or pursue it separately. Withholding gratuity as leverage invites an order from the Controlling Authority plus interest.

How long does an employer have to pay gratuity?

Thirty days from the date it becomes payable. After that, simple interest runs on the delayed amount at the rate notified by the central government, subject to a narrow exception where the delay is the employee's fault and the Controlling Authority has given written permission.

Is gratuity taxable in India?

Government employees' gratuity is fully exempt. For others, the exemption is the least of three amounts: gratuity actually received, a formula-based amount, and a notified monetary limit. Anything above is taxable as salary. The limit is a lifetime aggregate, so gratuity exempted at an earlier employer reduces what remains. Verify current limits before computing TDS.

Should a 30-person startup set up a gratuity trust?

Usually not yet. At that size the accrued liability is often modest and trust governance costs outweigh the benefit. A sensible sequence: provision monthly from year one, get an actuarial valuation once the liability is material for audit, move to a group gratuity policy for funding discipline, and consider an approved trust once headcount and stability justify the administration.

Conclusion

Gratuity calculation in India is not conceptually hard. It becomes a problem because the liability builds invisibly for years, then arrives as a cash demand with a 30-day clock, an interest penalty and a statutory forum the employee can use for free.

The practical takeaways:

1. Confirm whether the Act applies, remembering coverage does not lapse when headcount falls.
2. Get the wage base and rounding right: Basic plus DA, divided by 26, fifteen days per year, periods over six months rounded up.
3. Treat death and disablement as exceptions to the five-year rule, in policy and in your system.
4. Model the labour codes wage-definition impact now, and collect Form F nominations while you are at it.
5. Pay within 30 days, without netting off recoveries or demanding a release first.
6. Provision monthly, value annually, and keep records that can answer a claim made five years after the employee left.

If gratuity lives in a spreadsheet in your business, fix that first. CozyHR tracks eligibility, applies the statutory formula with configurable ceilings, builds your monthly provision, and pushes gratuity into full-and-final settlement with the correct tax split, inside your regular payroll run. Try CozyHR and see your accrued gratuity liability by employee in your first payroll cycle.

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Disclaimer: This article is general information, not legal, tax or accounting advice. Statutory ceilings, notified interest rates, tax exemption limits and the commencement status of the labour codes change by government notification and may differ by state. Verify current figures against the latest official notification and consult a qualified professional before acting on anything here.