RetirementFinancial Glossary
Gratuity
Definition
A lump sum paid by employers to employees who have completed 5 or more years of continuous service. Under the Payment of Gratuity Act, it is calculated as (Last drawn salary x 15 x Years of service) / 26, where salary includes basic pay and dearness allowance.
Why It Matters
Gratuity is a significant retirement benefit. For someone earning Rs 80,000 basic after 20 years of service, gratuity alone amounts to roughly Rs 9.2 lakh. It is tax-exempt up to Rs 20 lakh for government employees and Rs 20 lakh for private sector employees under the latest rules.