Gratuity Retirement Planning
Gratuity is the amount that a company gives to its employees in return for long-term service. This can also be called a kind of loyalty reward. In India, under the Payment of Gratuity Act, 1972, it is mandatory to pay gratuity in institutions where there are 10 or more employees. This amount is usually available on retirement, leaving the job or in special circumstances.
What changed after the new labor code?
Earlier, to get gratuity, it was necessary to work continuously for at least 5 years. But after the new labor code in 2025, fixed term i.e. contract or gig workers have got a big relief. Now such employees have become entitled to gratuity even after completing only one year of service. However, the condition of 5 years is still applicable for regular employees.
How is gratuity calculated?
The formula to calculate gratuity is quite simple:
Gratuity = Last Salary × Years of Work × (15/26)
Here the final salary includes basic salary and dearness allowance (DA). 26 days represents the working days of the month and 15 means calculation based on 15 days salary.
How much money will you get in 10, 20 and 30 years?
If the last salary and service period of an employee are different, then gratuity will be paid in this way.
10 years of job, salary Rs 50,000: approx Rs 2,88,461 20 years of job, salary Rs 60,000: approx Rs 6,92,307 30 years of job, salary Rs 70,000: approx Rs 12,11,528
That means, as your years of service and salary increase, the amount of gratuity also increases.
Maximum limits and prerequisites
According to the law, private sector employees can get a maximum gratuity of ₹ 20 lakh, whereas for central government employees this limit is up to ₹ 25 lakh. Apart from this, even if an employee dies before the completion of 5 years, the entire amount of gratuity is given to his nominee or family.
Why is it important to understand gratuity?
Gratuity is an important part of retirement planning. This is a huge amount of money received at the end of the job, which helps in future financial security. Therefore, every employee must understand its calculations and rules.
