Gratuity in CTC 2025: When you get a job offer, the salary package often comes with a term called CTC, or Cost to Company. It’s the total amount a company spends on you, including your salary, bonuses, and other benefits. One part of this CTC is gratuity, which is often listed as 4.81% of your basic salary. But what does this mean? Let’s break it down in simple terms, with examples, and cover all the important details for 2025.
What is Gratuity?
Gratuity is a lump-sum amount your employer pays you as a thank-you for your long-term service. It’s like a reward for staying with the company for at least five years. In India, gratuity is governed by the Payment of Gratuity Act, 1972, which applies to companies with 10 or more workers. You become eligible for gratuity when you resign, resign, or in case of death or disability (even before five years).
Why 4.81% Gratuity in CTC?
The 4.81% figure comes from how gratuity is calculated. Companies set aside this percentage of your basic salary every year to cover your future gratuity payment. The formula for gratuity is:
Gratuity = (15/26) × Last Drawn Salary (Basic + Dearness Allowance) × Years of Service
Here, 15/26 represents 15 days’ wages for a month (26 working days, excluding Sundays). When you work out the math, 15/26 equals roughly 0.5769, and when applied annually, it translates to about 4.81% of your basic salary. This amount is included in your CTC to show the company’s commitment to your gratuity.
How is Gratuity Calculated?
Let’s look at an example. Suppose your monthly basic salary in 2025 is ₹50,000, and you’ve worked for 7 years and 8 months (rounded to 8 years). If your company is covered under the Gratuity Act, your gratuity will be:
Gratuity = (15/26) × ₹50,000 × 8 = ₹2,30,769
If your company isn’t covered by the Act, the formula uses 30 days instead of 26:
Gratuity = (15/30) × ₹50,000 × 7 = ₹1,75,000
The maximum gratuity you can receive tax-free is ₹20 lakh as of 2025, though some sources mention ₹25 lakh for central government employees.
Key Dates and Rules for 2025
- Eligibility: You need 5 years of continual service, except in cases of death or disability.
- Payment Timeline: Employers must paid gratuity within 30 days of your exit. If delayed, they owe interest (as per the Gratuity Act).
- Tax Rules: Gratuity up to ₹20 lakh is tax-exempt for private-sector employees; excess amounts are taxed per your income slab.
- Recent Updates: The 2025 Union Budget hasn’t changed the gratuity cap, but always check for updates on government websites.
Conclusion
Including gratuity in your CTC helps you understand your full benefits. It’s not part of your monthly take-home salary but a future payout that supports your retirement or job switch. Always clarify with your employer if gratuity is part of your CTC and whether they follow the Gratuity Act. This small 4.81% can make a big difference in your financial planning!
