Confused about gratuity eligibility? Know if 4 years 7 months counts. Supreme Court rulings say 4 years 240 days is enough. Legal & HR guide for India.
Gratuity is one of the most important post-employment benefits in India, offering financial security to employees after years of dedicated service. However, there remains confusion about gratuity eligibility, especially concerning the exact duration of service required to qualify. This blog will clear up the common doubts, highlight critical Supreme Court judgments, and explain why the widely accepted “5-year rule” might actually be illegal — and how the courts have settled this issue once and for all.
What is Gratuity?
Gratuity is a statutory benefit governed by the Payment of Gratuity Act, 1972. It is a lump sum paid by the employer to an employee who has rendered continuous service, usually as a thank-you for their commitment upon leaving the company due to retirement, resignation, death, or termination.
The Basic Eligibility Rule: 5 Years of Continuous Service?
The common understanding is that employees become eligible for gratuity only after completing 5 full years of continuous service with the same employer. This is based on Section 4 of the Payment of Gratuity Act, which states:
Gratuity is payable after 5 years of continuous service.
Sounds simple enough, right? But here’s where things get interesting — and complicated.
Why Your 5 Year Gratuity Rule in India Might Be Illegal?
Most companies and HR departments strictly enforce the 5-year rule, denying gratuity if an employee leaves at 4 years and 7 months or even 4 years and 240 days. But the law and judicial rulings say otherwise.
The Law Actually Says: 4 Years + 240 Working Days Is Enough
The Act’s Section 2A defines what “continuous service” means, and this is where many employers get it wrong. There are two important clauses that both matter:
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Clause (1): Continuous service of 5 uninterrupted years, including authorized leave, sickness, and even strikes.
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Clause (2): Even if the service is not literally continuous, completing 240 actual working days in the 5th year counts as one full year of service.
In simpler terms: If an employee completes 4 years and 240 working days, they are legally entitled to gratuity.
Why Many Companies Are at Legal Risk
Many organizations rigidly apply the “5 full years” rule and deny gratuity claims for employees with less than 5 calendar years, exposing themselves to legal challenges.
A Common Misunderstanding Due to a Karnataka High Court Case
A 2022 Karnataka High Court ruling in Beml Limited vs Appellate Authority Under Payment Of gratuity Act (Writ Petition No. 11678 of 2018 (L-PG), dated 29 June, 2022, denied gratuity for 4 years + 240 days of service. However, this is a minority view and not the dominant legal position.
What Do Other High Courts Say?
Several High Courts have explicitly supported Clause (2) and have ruled in favor of gratuity entitlement even when service is just 4 years and 240 days, including, Delhi High Court, Madras High Court, Punjab & Haryana High Court and Kerala High Court.
All these courts agree that Clause (2) stands on its own, meaning 240 actual working days in the fifth year equals one full year of deemed service.
What Does the Supreme Court Say?
The Supreme Court has settled this debate in three landmark rulings – Mohd. Ali, Mohan Lal, and Surendra Kumar Verma – clarifying:
“It is not necessary that the workman should be in service for one calendar year, 240 days are equals to “continuous service” for that year.”
This means the “5-year continuous service” rule is flexible, and legally, 4 years + 240 days qualifies for gratuity.
Common Questions on Gratuity Eligibility
Is 4 Years 7 Months Eligible for Gratuity?
Yes, based on judicial precedents and the Payment of Gratuity Act’s interpretation, 4 years and 7 months (or 4 years + 240 days) of actual service entitles an employee to gratuity.
Supreme Court Judgement Gratuity 4 Years 6 Months
The Supreme Court has also ruled that even with 4 years and 6 months of service, an employee may be entitled to gratuity in cases of unfair termination or death before completing 5 years.
Supreme Court Judgement Gratuity 4 Years 240 Days
As explained above, the Supreme Court’s position is clear that 4 years + 240 days counts as one full year, making the employee eligible for gratuity.
How to Comply If You Are in HR or Industrial Relations
If you are handling gratuity claims, here’s what you should do to avoid legal trouble:
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Recognize that 4 years + 240 days is valid for gratuity eligibility.
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Calculate service duration from the date of joining, not calendar years.
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Include all paid leaves, holidays, and lay-offs in the calculation.
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Do not deny gratuity claims solely based on not completing 5 calendar years without applying Clause (2).
This is not just a legal technicality — it ensures fairness, compliance, and avoidance of costly litigation.
How is Gratuity Calculated?
The formula for gratuity calculation under the Payment of Gratuity Act is:
Gratuity = (Last drawn salary × 15/26) × Number of years of service
Where:
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Last drawn salary = Basic pay + Dearness Allowance
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15/26 = 15 days’ salary out of 26 working days per month
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Number of years = Rounded off (service of 6 months or more counts as a full year)
Concluding
The notion that gratuity eligibility requires a strict 5-year continuous service period is outdated and legally questionable. Employees with 4 years and 240 working days of service are entitled to gratuity as per the Payment of Gratuity Act and multiple Supreme Court and High Court judgments.
If you or someone you know has been denied gratuity despite serving close to 5 years, it is advisable to consult a legal expert and assert your rightful claim.
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This content is for general informational purposes only and does not constitute legal advice.