Executive Summary- Gratuity is a lump sum amount payable to employees as a reward for their continuous services for 5 years or more. It is calculated on the basis of the salary and tenure of service. In most conditions, it is exempt from income tax. The employer can deny gratuity in case of illegal or immoral acts by the employee.
1) What is gratuity?
Gratuity is a lump sum amount given to an employee by the employer as a form of recognition of the employee’s long-term service.
Gratuity is mandatory if the employer has 10 or more people in its rolls.
An employee is eligible for it if he/she completes 5 years of continuous years of service with the employer. 4 years and 7 months onwards is considered as 5 years for gratuity payment. It is given either at the time of leaving the job or retirement.
3) What are the conditions in which my employer can deny gratuity to me?
The employer can deny gratuity –
Gratuity is a lump sum amount given to an employee by the employer as a form of recognition of the employee’s long-term service.
Gratuity is mandatory if the employer has 10 or more people in its rolls.
2) When can I claim gratuity?
An employee is eligible for it if he/she completes 5 years of continuous years of service with the employer. 4 years and 7 months onwards is considered as 5 years for gratuity payment. It is given either at the time of leaving the job or retirement.
3) What are the conditions in which my employer can deny gratuity to me?
The employer can deny gratuity –
- If the services of the employee are terminated due to unlawful activities like riot or violence.
- If the services of the employee are terminated due to morally wrong acts done by him during the course of employment.
4) How is gratuity calculated?
Gratuity is based on salary and tenure. The formula to get the amount is –
Salary*Tenure*15/26
where,
– Salary = Basic Pay + Dearness Allowance + Commission
– Tenure = Number of years of service.
If you have worked for six months or more in a year, it is considered as one year for gratuity calculation. If you have worked less than 6 months in a year, that year is ignored
– 26 = Number of working days in a month (whether your company has a 5 day working week or 6 day working week
– 15 = 15 days salary is considered.
Gratuity is based on salary and tenure. The formula to get the amount is –
Salary*Tenure*15/26
where,
– Salary = Basic Pay + Dearness Allowance + Commission
– Tenure = Number of years of service.
If you have worked for six months or more in a year, it is considered as one year for gratuity calculation. If you have worked less than 6 months in a year, that year is ignored
– 26 = Number of working days in a month (whether your company has a 5 day working week or 6 day working week
– 15 = 15 days salary is considered.
Get your facts about Gratuity right
5) What are the taxation rules related to gratuity?
Taxation rules differ depending on the employee’s work –
a) Gratuity received by a person working in a department of the state government or central government is fully exempt from income tax.
Taxation rules differ depending on the employee’s work –
a) Gratuity received by a person working in a department of the state government or central government is fully exempt from income tax.
b) Gratuity received by a person working with an non-government employer covered under Payment of Gratuity Act is exempt from tax to the extent of the least of the following –
- Actual gratuity received;
- Rs 10,00,000;
- 15/26* salary for each completed year of service
c) Gratuity received by a person working with an non-government employer not covered under Payment of Gratuity Act is exempt from tax for the least of the following
- Half month’s average salary for each completed year of service (Average salary is the average of 10 months salary)
- Rs. 10,00,000
- Actual gratuity received
6) Who can receive gratuity?
A person working as an employee in any company, shop, manufacturing unit, agricultural business or service industry is eligible to receive gratuity as per the conditions of gratuity. An apprentice is not eligible for gratuity.
7) What else should I know about Gratuity?
- If an employee is disabled or dies when he/she is in service, the 5 year rule is not applicable. The gratuity amount is given to the nominee or legal heirs.
- If the employee contributes to a loss for the employer, he can be denied gratuity.
- If the employer’s work is of a seasonal nature, the gratuity shall be seven days wages per season.
- An employer can give gratuity greater than the amount specified by the government.
- You will get the gratuity along with the final settlement of dues. It should be given to the employee within 30 days of fulfilling the conditions.
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