By Sheetal Kumari | March 3, 2025

Moneycontrol PF Team| Aug 26, 2025

Gratuity in CTC: Meaning, Formula & How It’s Calculated

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A lump-sum benefit employers pay employees as a reward for loyalty & long service.

What is Gratuity?

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Payable after 5+ years of service on retirement, resignation, death, or disability.

When Do You Get It?

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Gratuity is calculated under the Payment of Gratuity Act, 1972.

Governing Law

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Gratuity = (Last Drawn Salary × 15 × No. of Years Worked) ÷ 26.

Gratuity Formula

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Only Basic Pay + Dearness Allowance are counted for gratuity calculation.

Salary Considered

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Offer letters show gratuity as 4.81% of your annual basic salary.

Gratuity in CTC

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If annual basic = ₹1,00,000, gratuity shown in CTC = ₹4,810.

Example Calculation

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As basic pay increases with appraisals, gratuity allocation also rises.

Revision Over Time

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Employees must nominate family members to receive gratuity payouts.

Nominee Requirement

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