Under the existing rules, government employees become eligible for gratuity after completing a minimum of five years of qualifying service. According to reports from Zee News, this threshold applies to employees in factories, mines, oilfields, plantations, ports, railways, and establishments with ten or more employees. The new labour codes introduce flexibility for fixed-term employees working on contractual basis, who are eligible to receive gratuity after completing one year of continuous service. This framework ensures that employees across different employment categories have access to gratuity benefits based on their service duration.
Gratuity received by central and state governments, local authorities and members of defence services is wholly exempt from tax. As reported by Zee News, this comprehensive exemption applies to all government employees regardless of their specific employment category. The exemption covers both regular government employees and defence personnel, providing complete tax relief for gratuity payments made by government entities.
For private sector employees not covered under the Gratuity Act 1972, tax exemption is calculated based on the least of three criteria: 15 days salary for each completed year of service, ₹20 lakh, or the actual gratuity amount received. According to Zee News, employees covered under the Gratuity Act 1972 receive different exemption rules, with the least of 15 days salary per completed year, ₹20 lakh, or the actual gratuity amount being exempt from tax. For non-Gratuity Act employees, the exemption is calculated as half month's average salary multiplied by completed years of service, capped at ₹20 lakh or the actual gratuity amount.
Gratuity is calculated based on the employee's basic pay and Dearness Allowance (DA) with a maximum payable amount capped at ₹25 lakh. As reported by Zee News, the maximum gratuity is limited to 16.5 times the employee's emoluments. The standard calculation formula uses last drawn monthly wages × 15/26 × completed years of service, with every month considered 26 days for organizations. Payment is triggered by termination, superannuation, resignation, death, disablement, or expiration of fixed-term contracts.
Employees who become disabled due to illness or accident are entitled to gratuity regardless of completing five years of service. According to Zee News, gratuity is also payable to legal heirs in case of employee death during service. For minor nominees or heirs, the share is deposited with a competent authority and invested in a bank or financial institution until majority. The framework ensures comprehensive coverage for employees facing unforeseen circumstances during their employment period.
