Gratuity and CTC in India: Industry Practice

Gratuity is typically included in the Cost to Company (CTC) as a component. However, it's essential to understand that while it's a part of the CTC, it's not a salary component and isn't paid out regularly.

Why is Gratuity Included in CTC?

• Legal Obligation: Employers are legally bound to pay gratuity to eligible employees under the Payment of Gratuity Act, 1972. Including it in the CTC helps in budgeting for this future liability. ?
• Attracting and Retaining Talent: A higher CTC, which includes gratuity, can make a job offer more attractive to potential employees. It also serves as a retention tool, encouraging employees to stay with the organization for the long term.
• Accounting and Taxation: Including gratuity in the CTC simplifies accounting and tax processes.

Key Points to Remember

• Gratuity is a benefit, not a salary component. ?
• It's calculated based on the last drawn salary and years of service. ?
• Payment is made only after completing five years of continuous service. ?
• While included in CTC, it doesn't reflect the actual monthly or annual income.

In essence, while gratuity is part of the CTC, it's a deferred benefit and not a component of regular income.

Would you like to know more about how gratuity is calculated or the tax implications of gratuity?