Is gratuity paid on resignation in India?

Yes. If an employee resigns after completing at least 5 years of continuous service with the same employer, they are entitled to gratuity under the Payment of Gratuity Act 1972. Gratuity is not a retirement-only benefit - it is payable on any terminal event (retirement, resignation, termination, or retrenchment) after 5 years of service. If you resign before 5 years, gratuity is generally not payable except in cases of death or disability.

Does an employee get gratuity if they die while in service?

Yes. If an employee dies while in service, the full gratuity amount is payable to the nominee or legal heir regardless of the number of years of service completed. The 5-year minimum service requirement is waived in case of death. The gratuity is calculated using the actual years of service and last drawn basic salary. Additionally, the gratuity received by the nominee is tax-free in their hands.

Which companies are covered under the Payment of Gratuity Act?

The Payment of Gratuity Act 1972 applies to every establishment (factory, mine, oilfield, plantation, port, railway, shop, or educational institution) that has 10 or more employees at any point of time. Once an establishment is covered under the Act, it remains covered even if the number of employees subsequently falls below 10. Government employees are generally covered by their own service rules but receive gratuity at least at the same rate or better.

Can an employer forfeit gratuity?

Yes, in limited circumstances. An employer can forfeit gratuity (partially or fully) if the employee's service is terminated due to: an act of willful omission or negligence causing damage or loss to the employer's property, or if the employee is terminated for moral turpitude or riotous or disorderly conduct. The forfeiture must be proportional to the damage/loss caused. The employer cannot forfeit gratuity simply because the employee resigned giving inadequate notice.

Within how many days must the employer pay gratuity?

Under the Payment of Gratuity Act, the employer must pay the gratuity amount within 30 days from the date it becomes payable (typically the date of employee separation). If the employer fails to pay within 30 days without a valid reason, a simple interest at the rate of 10% per annum is payable on the outstanding amount from the due date to the actual date of payment. If the employer disputes the eligibility or amount, they must communicate the reasons in writing within 30 days.

Gratuity Eligibility Rules India 2026 - Who Gets Gratuity, 5-Year Rule and Exceptions

Written by Suchitra Rao | Updated: April 2026 | 9 min read

Many Indian employees are confused about whether they are entitled to gratuity, particularly when resigning or being retrenched. The Payment of Gratuity Act 1972 lays down clear eligibility criteria. This guide explains who can claim gratuity, what the 5-year rule means in practice, when the 5-year rule is waived, and how nominees can claim in the case of death.

Basic Eligibility: Who Is Entitled to Gratuity?

Gratuity is payable to an employee when the employment ends due to any of the following reasons:

Retirement (including superannuation)
Resignation (after 5 years of service)
Retrenchment or layoff
Termination by the employer
Death while in service (at any time - no minimum service required)
Permanent disability while in service (at any time - no minimum service required)

The key condition for all scenarios except death and disability: at least 5 years of continuous service with the current employer.

The 5-Year Continuous Service Rule

The term "continuous service" under the Act is broader than it might appear. Service is considered continuous even if interrupted by:

Authorised leave (earned leave, sick leave, maternity leave, etc.)
Absence due to accident or illness (certified by a medical practitioner)
Lay-off by the management (if the employee reports back when recalled)
Strike (which is not illegal) or lock-out

Service is not considered continuous if interrupted by:

Unauthorised absence without leave on loss of pay
Resignation followed by re-joining (a new tenure starts fresh)
Dismissal for misconduct (service breaks)

Important rounding rule: Under Section 2A(2)(b) of the Payment of Gratuity Act, for the purpose of computing 5 years' eligibility, if the employee has completed 4 years and 240 working days in the 5th year, that counts as 5 years completed (even if the calendar 5 years have not elapsed). The 240-day rule applies to surface workers; for underground mine workers, it is 190 days.

Death and Disability: The Exception to the 5-Year Rule

The most important exception is death or permanent disability:

Death: If an employee dies while in service (regardless of years of service, even on Day 1), the employer must pay the full gratuity calculated on actual years of service to the registered nominee. If no nominee is registered, the gratuity goes to the legal heirs.
Permanent disability: If an employee becomes permanently and totally disabled due to an accident or disease while in service, the same rule applies - gratuity is payable regardless of tenure.

Both these exceptions ensure that the employee's family is not penalised simply because an unfortunate event occurred early in the employment. This is why registering your nominee for gratuity (usually done through your employer's HR portal) is important.

Establishments Covered and Not Covered

Type of Establishment	Covered Under Act?	Notes
Private company with 10+ employees	Yes	Remains covered even if employees fall below 10 later
Government employees (Central/State)	Yes (own rules)	Governed by Central Civil Services Rules; typically more generous
Factories, mines, plantations	Yes	Regardless of employee count
Educational institutions (10+ employees)	Yes	Included since 1997 amendment
Startup / small company with fewer than 10 employees	Not statutorily	Can pay voluntarily; exempt from Act
Contract / daily wage workers	Yes (if employed continuously)	240 working days rule applies for continuity

Payment Timeline and Consequences of Delay

Once gratuity becomes payable (on the date of separation), the employer has 30 days to pay the full amount. The process:

Employee submits a written claim for gratuity (Form I) to the employer.
Employer verifies and acknowledges the claim within 15 days.
Employer determines the payable amount and issues a payment notice within 30 days.
Gratuity is paid within 30 days of the claim, or a valid reason for dispute/delay is communicated in writing.

If the employer fails to pay within the stipulated time without valid justification, simple interest at 10% per annum is payable on the delayed amount. Disputes can be referred to the Controlling Authority (typically a Labour Commissioner) under Section 7 of the Payment of Gratuity Act.

Related Resources

Disclaimer: This guide is for educational purposes. The Payment of Gratuity Act 1972 and its amendments govern gratuity entitlements. State-specific rules may vary. Consult a labour law lawyer or your company's HR department for specific disputes or eligibility questions.

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