End-of-Service Gratuity in the UAE: How Indians Can Calculate Payout & Handle Indian Taxes Smartly
Introduction
End-of-Service Gratuity (EOSG) is a crucial financial benefit for Indians working in the UAE. Whether you are resigning, retiring, or completing a contract, understanding how gratuity is calculated in the UAE and how it is taxed (or not taxed) in India is essential for proper financial planning. This detailed FAQ guide answers the most common questions Indian NRIs have about UAE gratuity calculation, eligibility, payout rules, and Indian tax implications in simple, human-friendly language.
1. What is End-of-Service Gratuity in the UAE?
Short Answer: It is a lump-sum payment given to employees when they leave a UAE job.
Long Answer: End-of-Service Gratuity is a statutory benefit under UAE Labour Law, paid to eligible employees after completing at least one year of continuous service. It acts as a retirement or severance benefit and is calculated based on basic salary and years of service.
Long Answer: End-of-Service Gratuity is a statutory benefit under UAE Labour Law, paid to eligible employees after completing at least one year of continuous service. It acts as a retirement or severance benefit and is calculated based on basic salary and years of service.
2. Who is eligible for gratuity in the UAE?
Short Answer: Employees completing one year of continuous service.
Long Answer: Any employee working under a UAE labour contract (limited or unlimited) and completing at least one full year of service is eligible, provided they are not terminated for serious misconduct.
Long Answer: Any employee working under a UAE labour contract (limited or unlimited) and completing at least one full year of service is eligible, provided they are not terminated for serious misconduct.
3. How is gratuity calculated in the UAE?
Short Answer: Based on basic salary and total years worked.
Long Answer: Gratuity is calculated using your last drawn basic salary (excluding allowances). For the first 5 years, you receive 21 days’ basic salary per year. Beyond 5 years, you receive 30 days’ basic salary per year.
Long Answer: Gratuity is calculated using your last drawn basic salary (excluding allowances). For the first 5 years, you receive 21 days’ basic salary per year. Beyond 5 years, you receive 30 days’ basic salary per year.
4. What is the maximum gratuity payable in the UAE?
Short Answer: Maximum is two years’ basic salary.
Long Answer: UAE labour law caps gratuity at an amount equal to 24 months (2 years) of basic salary, even if you have worked longer.
Long Answer: UAE labour law caps gratuity at an amount equal to 24 months (2 years) of basic salary, even if you have worked longer.
5. Is gratuity calculated on gross salary?
Short Answer: No, only on basic salary.
Long Answer: Allowances such as housing, transport, food, or overtime are excluded. Only the basic salary stated in your employment contract is used.
Long Answer: Allowances such as housing, transport, food, or overtime are excluded. Only the basic salary stated in your employment contract is used.
6. Does resignation affect gratuity entitlement?
Short Answer: Yes, in some cases.
Long Answer: Under current UAE law, employees are generally entitled to full gratuity even if they resign, provided they complete at least one year and are not dismissed for misconduct.
Long Answer: Under current UAE law, employees are generally entitled to full gratuity even if they resign, provided they complete at least one year and are not dismissed for misconduct.
7. Is gratuity paid if the contract is terminated?
Short Answer: Yes, unless terminated for misconduct.
Long Answer: If termination is due to redundancy, business closure, or performance reasons, gratuity is payable. It may be forfeited only in cases of serious disciplinary violations.
Long Answer: If termination is due to redundancy, business closure, or performance reasons, gratuity is payable. It may be forfeited only in cases of serious disciplinary violations.
8. How is gratuity calculated for part years?
Short Answer: Pro-rata basis.
Long Answer: Any partial year worked after completing one full year is calculated proportionally based on the number of days worked.
Long Answer: Any partial year worked after completing one full year is calculated proportionally based on the number of days worked.
9. Can Indian NRIs receive gratuity after returning to India?
Short Answer: Yes.
Long Answer: Gratuity can be credited to a UAE or international bank account even after relocation, subject to employer processing.
Long Answer: Gratuity can be credited to a UAE or international bank account even after relocation, subject to employer processing.
10. Is UAE gratuity taxable in the UAE?
Short Answer: No.
Long Answer: The UAE does not levy personal income tax, so gratuity received there is completely tax-free locally.
Long Answer: The UAE does not levy personal income tax, so gratuity received there is completely tax-free locally.
11. Is UAE gratuity taxable in India for NRIs?
Short Answer: Generally, no.
Long Answer: If the gratuity is received for services rendered outside India while you are an NRI, it is not taxable in India.
Long Answer: If the gratuity is received for services rendered outside India while you are an NRI, it is not taxable in India.
12. What if gratuity is received after becoming a resident in India?
Short Answer: It may still be tax-exempt.
Long Answer: Even if received after returning to India, gratuity related to foreign employment is generally considered non-taxable, but documentation is important.
Long Answer: Even if received after returning to India, gratuity related to foreign employment is generally considered non-taxable, but documentation is important.
13. Does India-UAE DTAA apply to gratuity?
Short Answer: Yes, indirectly.
Long Answer: The Double Taxation Avoidance Agreement ensures income is not taxed twice and supports exemption of foreign employment income.
Long Answer: The Double Taxation Avoidance Agreement ensures income is not taxed twice and supports exemption of foreign employment income.
14. Should gratuity be reported in Indian ITR?
Short Answer: Yes, as exempt income if applicable.
Long Answer: Declaring it under “Exempt Income” improves transparency and avoids future tax notices.
Long Answer: Declaring it under “Exempt Income” improves transparency and avoids future tax notices.
15. Can gratuity be credited to an NRE account?
Short Answer: Yes.
Long Answer: If remitted properly, gratuity can be credited to an NRE account, allowing tax-free interest in India.
Long Answer: If remitted properly, gratuity can be credited to an NRE account, allowing tax-free interest in India.
16. Is TDS applicable on UAE gratuity in India?
Short Answer: No.
Long Answer: Since the income is not taxable, there is no TDS applicable in India.
Long Answer: Since the income is not taxable, there is no TDS applicable in India.
17. What documents are needed for tax clarity?
Short Answer: Salary slips and gratuity statement.
Long Answer: Keep employment contract, final settlement letter, gratuity calculation sheet, and bank remittance proofs.
Long Answer: Keep employment contract, final settlement letter, gratuity calculation sheet, and bank remittance proofs.
18. Can gratuity be invested in India?
Short Answer: Yes.
Long Answer: Many NRIs invest gratuity in fixed deposits, mutual funds, or retirement instruments in India.
Long Answer: Many NRIs invest gratuity in fixed deposits, mutual funds, or retirement instruments in India.
19. Is gratuity different from pension?
Short Answer: Yes.
Long Answer: Gratuity is a one-time payment, while pension or savings schemes are recurring retirement benefits.
Long Answer: Gratuity is a one-time payment, while pension or savings schemes are recurring retirement benefits.
20. Can employers delay gratuity payment?
Short Answer: No, legally.
Long Answer: UAE law requires employers to pay gratuity promptly after termination or resignation.
Long Answer: UAE law requires employers to pay gratuity promptly after termination or resignation.
21. What if gratuity is wrongly calculated?
Short Answer: You can dispute it.
Long Answer: Employees can approach the UAE Ministry of Human Resources & Emiratisation (MOHRE) for resolution.
Long Answer: Employees can approach the UAE Ministry of Human Resources & Emiratisation (MOHRE) for resolution.
22. Is gratuity protected during company bankruptcy?
Short Answer: Yes, to an extent.
Long Answer: Employee dues, including gratuity, are prioritized under UAE labor protections.
Long Answer: Employee dues, including gratuity, are prioritized under UAE labor protections.
23. Does unpaid leave affect gratuity?
Short Answer: Yes.
Long Answer: Periods of unpaid leave are excluded from service duration while calculating gratuity.
Long Answer: Periods of unpaid leave are excluded from service duration while calculating gratuity.
24. Is gratuity applicable for part-time workers?
Short Answer: Sometimes.
Long Answer: Eligibility depends on the employment contract and labor law classification.
Long Answer: Eligibility depends on the employment contract and labor law classification.
25. Can gratuity be forfeited completely?
Short Answer: Only in severe cases.
Long Answer: Serious misconduct such as fraud or violence may lead to full forfeiture.
Long Answer: Serious misconduct such as fraud or violence may lead to full forfeiture.
26. Does changing employers affect gratuity?
Short Answer: Yes.
Long Answer: Gratuity resets unless service continuity is officially transferred.
Long Answer: Gratuity resets unless service continuity is officially transferred.
27. Can gratuity be transferred between companies?
Short Answer: Rarely.
Long Answer: Only possible in structured corporate transfers with mutual agreement.
Long Answer: Only possible in structured corporate transfers with mutual agreement.
28. Is gratuity affected by visa type?
Short Answer: No.
Long Answer: Gratuity depends on employment contract, not visa category.
Long Answer: Gratuity depends on employment contract, not visa category.
29. Should Indians take financial advice before remitting gratuity?
Short Answer: Yes.
Long Answer: Proper planning helps optimize tax status, investments, and compliance in India.
Long Answer: Proper planning helps optimize tax status, investments, and compliance in India.
30. What is the biggest mistake Indians make with UAE gratuity?
Short Answer: Not documenting it properly.
Long Answer: Lack of paperwork and incorrect tax reporting can create future legal or tax complications.
Long Answer: Lack of paperwork and incorrect tax reporting can create future legal or tax complications.
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