Every salaried employee looks forward to receiving gratuity as a reward for long-term service. It represents the employer’s gesture of gratitude and is governed by the Payment of Gratuity Act, 1972. However, there are instances when employers delay or deny gratuity payments. Knowing your rights and the actions you can take is crucial in such situations. Before understanding the legal remedies, it’s important to grasp the meaning of gratuity and how it is calculated using a gratuity calculator.

Understanding gratuity and its purpose

Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for continuous service, typically after leaving the organization. It serves as a retirement benefit that helps employees secure their post-employment life.

This benefit applies to organizations employing ten or more people and becomes payable after a minimum of five years of continuous service, except in cases of death or disability, where the condition is waived.

It acts as a financial bridge between employment and retirement, rewarding loyalty and long-term commitment.

Eligibility for receiving gratuity

To qualify for gratuity, an employee must meet the following conditions:

1. Completion of at least five years of continuous service with the employer.
2. Employment under an establishment covered by the Payment of Gratuity Act, 1972.
3. Termination of employment due to resignation, retirement, death, or disablement.

If an employee passes away before completing five years, the employer must pay gratuity to the nominee or legal heir. Once the conditions are met, gratuity becomes a statutory right, and the employer is legally obligated to disburse it.

How gratuity is calculated

The gratuity amount depends on the employee’s last drawn salary and years of service. It can be calculated using the following formula or gratuity calculator:

Gratuity = (Last drawn salary × 15 × Number of years of service) ÷ 26

Here, salary includes basic pay plus dearness allowance.

Example:
If your last drawn salary is ₹40,000 and you worked for 10 years:
(40,000 × 15 × 10) ÷ 26 = ₹2,30,769 (approx.)

The maximum tax-free gratuity limit under current law is ₹20 lakh. Any amount beyond this is taxable under the Income Tax Act.

What happens if the employer refuses to pay gratuity

If your employer does not pay gratuity even after fulfilling eligibility conditions, it is a violation of the Payment of Gratuity Act. You can take the following steps:

1. File a formal request: Write to your employer requesting gratuity payment within 30 days of it becoming due.
2. Approach the controlling authority: If the employer fails to respond, file a complaint with the controlling authority under the Labour Department.
3. Legal notice and prosecution: The authority will conduct an inquiry, and if the employer is found guilty, they may be ordered to pay the gratuity with interest. Non-compliance can lead to imprisonment of up to two years or a fine.

Employers are legally required to release gratuity within 30 days of it becoming payable. Failure to do so attracts interest on the delayed amount from the due date until the payment is made.

When gratuity can be withheld or forfeited

While gratuity is a legal right, there are limited cases where it can be withheld or forfeited, such as:

• Termination due to misconduct involving moral turpitude.
• Wilful negligence or damage caused to the employer’s property.
• Fraud, theft, or acts of violence during employment.

However, the employer must provide valid proof and follow due legal process. Arbitrary withholding is not permitted under the Act.

Importance of keeping employment records

Employees should always keep copies of appointment letters, salary slips, and employment correspondence. These serve as evidence when filing claims related to gratuity.

Proper documentation ensures that the gratuity calculation reflects accurate service and salary data, strengthening your case in the event of a dispute.

Tax benefits on gratuity

Gratuity payments are tax-exempt up to ₹20 lakh for employees covered under the Payment of Gratuity Act.

• For government employees, the entire amount is tax-free.
• For private sector employees, the exemption applies only up to the prescribed limit, and any excess is taxable under Income from Other Sources.

To make the most of this one-time benefit, employees can plan how to invest their gratuity in low-risk, fixed-return instruments that ensure safety and liquidity.

What to do in case of dispute or non-payment

If your employer denies or delays gratuity without valid reason, you can:

• File a complaint within 90 days of the due date using Form N under the Payment of Gratuity (Central) Rules, 1972.
• The controlling authority will investigate and, if necessary, order the employer to pay the amount with interest.
• Persistent non-compliance may result in penalties or imprisonment for the employer.

In complex cases (e.g., contractual roles or multiple employers), consult a labour law expert for assistance.

Securing your financial future

While gratuity provides valuable financial support post-employment, it’s a one-time benefit. To build sustained, long-term financial stability, consider allocating a portion of your gratuity to secure, interest-bearing investments.

Bajaj Finance Fixed Deposit offers:

• Competitive interest rates of up to 7.30% p.a.
• Flexible tenures ranging from 12 to 60 months
• Minimum investment starting from ₹15,000
• The highest safety ratings — CRISIL AAA/STABLE and ICRA AAA/STABLE

Investing your gratuity in such a fixed deposit can help preserve your capital and generate consistent, assured returns over time.

Final thoughts

Understanding how gratuity works and what to do if your employer fails to pay it empowers you to protect your rights. Gratuity is not a discretionary payout — it’s a legal entitlement under Indian law.

By maintaining proper records, acting promptly in case of disputes, and making informed investment choices like Bajaj Finance Fixed Deposits, you can secure your post-retirement finances and ensure steady growth of your hard-earned money.