Disclaimer: This article explains gratuity based on the Payment of Gratuity Act, 1972. It does not fully cover changes introduced under the 2025 Labour Codes or later amendments. If your employment terms specifically refer to the new Labour Codes or fixed‑term contracts, please consult your HR or a labour‑law expert for the latest rules.

Gratuity Eligibility & Myths: A Practical Guide for Indian Software Professionals

Hey readers! Here’s a complete, jargon-free summary of everything you need to know about gratuity—how it really works, how eligibility is decided, common HR myths, and what you should watch out for as you plan your next career move - curated from my own research and experience.

1. What Is Gratuity?

• Gratuity is a lump-sum payment made by an employer to an employee as a reward for long-term service. It’s governed by the Payment of Gratuity Act, 1972.
• It’s NOT a deduction from your salary. The employer pays it from their own funds.
• Most IT and private companies (with more than 10 employees) are covered by this law.

2. Eligibility: The Real Rules

• General Rule: You become eligible for gratuity after five years of continuous service (Section 4, Payment of Gratuity Act). keep reading…

The Big Exception: There’s no need to complete a full “5 calendar years”…read ahead to know more

The “4 years and 190 days”/“4 years and 240 days” Rule

• If your company operates a 5-day workweek, you become eligible after 4 years and 190 days of continuous service (Section 2A, Payment of Gratuity Act).
• For a 6-day workweek, it’s 4 years and 240 days.
• This is called the “deemed one year” rule: If you’ve worked those 190 (or 240) days in the 5th year, it’s legally treated as 5 years.

Key Court Case:

• Mettur Beardsell Ltd. vs. RLC (Madras High Court, 1996): Upheld that 4 years and 240 days counts as 5 years for gratuity eligibility for 6-day workweeks. For 5-day weeks, the “190 days” logic applies.

3. What Counts as “Continuous Service”?

• All authorised paid leaves, earned leave, sick leave, public holidays, maternity leave, and notice period count.
• Unauthorised absences DO NOT count if they lead to official breaks in service.
• LWD (Last Working Day): Your service includes your last day on the company payroll (even if it’s during your notice period).

In short: If you remained officially employed, all those days—leave, WFH, holidays, notice—count towards gratuity eligibility.