Gratuity from Indian Employer
Payment of Gratuity Act 5-year rule, ₹20L exempt cap, Form I nomination.
The 60-second version
Indian employers pay gratuity after 5 years continuous service under Payment of Gratuity Act — formula: 15/26 × last drawn salary × years. I track eligibility from merged prior Indian service if continuous.
5-year clock can include earlier Indian stint if uninterrupted
Payment of Gratuity Act covers establishments with 10+ employees — gratuity payable on resignation/retirement/death after 5 years.
Formula uses basic + DA last drawn — ₹20 lakh lifetime exemption cap under Section 10(10) for private sector.
Returning NRI: prior Indian service counts if continuous per employer policy — get HR written confirmation.
Abroad settlement: foreign final settlement guide.
Gratuity vs other exits
| Benefit | Trigger | Tax |
|---|---|---|
| Gratuity (India) | 5y+ service | Exempt up to ₹20L |
| UAE EOS | End of service | India characterization |
| EPF | Separation | Tax rules separate |
| Pension EPS | 58+ or early | Separate Form 10D |
| Leave encashment | Exit | 10(10AA) limits |
Gratuity tracking sequence
HR policy read
Gratuity covered? 5-year definition?
Prior service proof
Old Form 16 / relieving letters.
Form I if needed
Nomination for gratuity on joining.
Accrual tracker
Years × salary estimate annually.
Exit claim
Form within 30 days of leaving — employer pays 30 days.
Accrual flow
Gratuity employee kit
- Form I nomination.
- Joining date proof.
- Prior service letters.
- Basic+DA payslips.
- UAN linked.
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Startup <10 employees
Act may not apply — check offer letter gratuity clause anyway.
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Break between India jobs?
New employer may reset 5-year — negotiate recognition.
Contract employee?
Fixed-term may still accrue if Act applies.
Tax above ₹20L?
Excess taxable as salary.
Dual UAE + India?
Separate regimes — no offset.
Gratuity while NRI?
Act applies to Indian establishment employees on Indian payroll.
Form 16 gratuity?
Shown separately — verify 10(10) exempt amount.
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