Gratuity in India: Meaning, Rules, Eligibility & Form F Guide

Gratuity is a statutory lump-sum payment made by an employer to an employee for long-term service under the Payment of Gratuity Act, 1972. It is typically paid by the employer at the time of retirement, resignation, death or permanent disablement and applies to establishments with 10 or more employees and their staff (excluding apprentices). The payment is calculated based on last drawn salary (basic + dearness allowance) and years of service, and must be paid within 30 days of becoming payable, failing which interest and penalties may apply. For government employees gratuity rules may differ but they generally receive fully exempt gratuity benefits under applicable rules.

You are eligible for gratuity after completing generally 5 years of continuous service in an organisation covered by the Act, though the 5-year requirement is waived in case of death or permanent disablement. The 240-day rule means that if you have worked 240 days in the fifth year it may be treated as completing the fifth year for gratuity calculation (useful where a full calendar year of service was not completed). Fixed-term/contract employees became eligible for pro-rata gratuity after just 1 year of continuous service from the changes effective 21 November 2025. Exceptions, like death or disability, allow immediate eligibility irrespective of completed years.

Gratuity is calculated as: (Last drawn salary × 15 × Number of years of service) ÷ 26, where last drawn salary means basic salary plus dearness allowance and 15 represents days’ wages per year while 26 is taken as working days in a month. For example, an employee with a last drawn salary of ₹40,000 and 10 years’ service would get (40,000 × 15 × 10) ÷ 26 ≈ ₹2,30,769. Part years are counted as completed years only when statutory rules (like the 240-day rule) allow; for fixed-term employees pro-rata calculation applies as per recent amendments. Remember that the Act’s definition of wages and minimum wage inclusion (now a minimum of 50% of CTC effective from 21 November 2025) can affect the base salary used.

Gratuity received by non-government employees is tax-free up to ₹20 lakh under the Income Tax Act, whereas gratuity received by government employees is fully exempt subject to applicable rules. Any gratuity amount exceeding ₹20 lakh for non-government employees is taxable as per the recipient's income tax slab rates. To claim exemption properly you should maintain documentation such as employer certificate and Form 10 (if required) when filing income tax returns.

An employer can forfeit gratuity only in limited cases: for wilful damage or loss to the employer’s property (to the extent of damage), termination for riotous or disorderly conduct, or for acts involving moral turpitude proven after a proper domestic inquiry. Minor misconduct, ordinary resignation or poor performance do not entitle an employer to forfeit gratuity. Forfeiture must be proportional (only to the extent of proven damage) and employers must follow due process; arbitrary deductions or denial can be challenged legally.

A gratuity nominee is the person you designate to receive your gratuity in case of your death, and nomination must be made using Form F under the Payment of Gratuity Act. Form F requires employee details, nominee name(s), address, age, relationship and the share of gratuity allotted to each nominee, and must be signed and dated by the employee. If no nominee is registered, the gratuity is paid to the legal heirs as per succession laws, which can delay payment, so keeping Form F updated (after marriage, birth of children, etc.) is important.

Form F is the nomination form employees use to name one or more persons to receive gratuity on their death, while Form I is the application form to claim gratuity on resignation, retirement, superannuation, death or disablement. You must submit Form F during employment to register a nominee, and submit Form I (with required proofs like service certificate, death certificate if applicable, and bank details) to the employer when claiming gratuity; employers may require additional supporting documents as per internal procedures. Both forms are prescribed under the Act, and correctly filled forms speed up processing and avoid disputes or delays.

To fill Form F correctly, you must enter mandatory employee details (name, address, designation, employee ID), full details of nominee(s) including name, address, age and relationship, specify the share of gratuity for each nominee, and sign and date the form. Ensure the nominee’s age is accurate (affects succession) and shares add up to 100% if multiple nominees are entered; unclear or incomplete entries can lead to rejections or payment delays. Keep a copy of the submitted Form F and inform HR immediately of life events (marriage, birth of children) so the nomination reflects current intent.

An employer must pay gratuity within 30 days from the date it becomes payable (for example, date of retirement, resignation, or death), and failure to do so attracts interest and penalties under the Payment of Gratuity Act. Delayed payments may incur statutory interest and can invite prosecution or fines against the employer if non-payment persists; employees can file a claim before the controlling authority or labor court. To avoid delays, submit Form I with all required documents promptly and follow up with HR, and keep records of communications and notices served.