Gratuity Meaning : Check Eligibility, Formula & Rules

Gratuity meaning can be explained as the total money payable to employees who have rendered their services to an organization for at least five years. Such funds aim to reward the loyalty of individuals, as well as provide incentives for distinguished services over an extended duration.

All businesses operating in the organized sector are mandated under the Payment of Gratuity Act, 1972 to disburse such funds to employees. However, companies having more than ten employees for at least 12 months have to pay gratuity as per the following calculator- 

Gratuity = Last earned salary x (15/26) x number of years of service provided

In case of organizations having less than or up to ten employees, they can determine total payment amounts using the following formula-

Gratuity = Last earned salary x (15/30) x number of years of service rendered. 

Total gratuity income earned is tax-free, provided it is under Rs. 10 Lakh. Such substantial amounts can be invested in various investment options, depending on the risk aptitude and liquidity needs of an individual. 

Fixed deposits (FD) are among the most preferred investment options provided by the masses for such investments, as they have negligible associated risks with high assured returns. FD schemes are not subject to any form of market fluctuations, making them a stable tool for investment as well.