Gratuity is a payment that an employer makes to the employee either at retirement or when he leaves the company after continuously working for five years or more.
As per Payment of Gratuity Act, 1972, companies with more than 10 employees working in factories, mines, oilfields, plantations, ports, railway companies, shops or other related establishments need to pay gratuity.
Gratuity is calculated as 15 days' last drawn wages multiplied by the number of years of service completed.
Gratuity paid to government employees is exempt from tax and the tax-free limit for private employees is `20 lakh.
The gratuity amount is paid by the employer unlike the case of the provident fund where the employee too contributes.
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