Why gratuity isn't part of your monthly salary
The 5-year vesting rule, and what happens if you leave early.
Gratuity shows up in your CTC breakdown from the very first year of a job, which makes it easy to assume it’s already yours, quietly building up in the background. It isn’t. It only becomes real money under one specific condition, and missing that condition by even a month means walking away with none of it.
Provisioned every year, paid in none of them
Your employer sets aside a fixed slice of your CTC for gratuity every year, calculated from the Payment of Gratuity Act’s own formula (15 days’ pay per year of service, divided by 26 working days) annualised into a flat 4.81% of your yearly Basic salary. It appears in your CTC breakup, but it never appears on your payslip: an employer-side provision, not a monthly credit.
Basic works out to ₹40,000/month. The gratuity provisioned into that CTC each year: ₹23,088.
Convert your annual CTC into an estimated monthly take-home salary.
Estimate the gratuity payable to you based on tenure and last drawn pay.
The 5-year rule is a cliff, not a ramp
The Payment of Gratuity Act requires 5 full years of continuous service before any gratuity is legally payable — and that threshold doesn’t prorate. Leaving at 4 years and 11 months pays out exactly the same as leaving after 4 months: nothing. All those years of provisioning inside your CTC don’t convert into a partial payout; they simply don’t vest.
Not eligible — ₹0 paid, despite roughly ₹1,15,440 having been provisioned into CTC across those same five almost-complete years.
Now eligible — ₹1,15,385paid, using the Act’s own formula (15 × Basic ÷ 26, per year of service). One extra month of tenure is the entire difference between the two outcomes.
Notice how close the two figures are: the amount provisioned over five years and the amount the formula actually pays out at five years land within a few hundred rupees of each other. That’s not a coincidence. The 4.81% provisioning rate is derived from the exact same 15/26 formula, annualised. The rate the accountants use to set aside money and the rate the law uses to pay it out are the same rate — the only real risk is the all-or-nothing cliff sitting in between.
What keeps accruing once you’ve cleared it
Past five years, the formula keeps scaling directly with tenure at the same last-drawn salary — there’s no second cliff, no diminishing accrual, just a steady linear climb for as long as the employment continues.
₹2,30,769— almost exactly double the 5-year figure, since the formula is linear in years of service at a fixed salary.
Two things get left out here on purpose: the statutory ceiling that caps what’s legally payable no matter how large the formula amount grows, and the separate, shorter minimum-service rule that applies specifically to fixed-term contract employees. Both change the numbers enough to need their own worked examples.
All figures are indicative and for educational purposes only — not financial advice.
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