Gratuity is a lump sum payment given by the employer as mark of recognition to the employee’s service. An employee gets gratuity at the time of retirement or leaving the job and it depends only upon the tenure of service and last drawn salary.
Requirements on the part of employee for claiming of gratuity:
You should have
worked for not less than five years for the employer or in certain cases 4
years and in excess of six months. (Please note : minimum time(days) to
consider a year as continuous year of service is 240 days if working above
ground and 190 days in case of mines) .
The Gratuity is
Calculated as follows : ( Basic + DA ) /26 X 15 X No of Years Worked.
Coverage of the ACT
: if 10 or More Persons have been , or
were employed in any day of the preceding 12 months then yes , gratuity is
Current Amendments :
Gratuity upto INR
10,00,000 is tax free and The maximum Gratuity Payable should not exceed a
total of 20 Months Wages.
There is a limit of gratuity exemption from tax. Gratuity of more than 10 lakhs would be liable to the tax. The employee must pay the tax on the gratuity over and above the Rs 10,00,000. Earlier this limit was only 3.5 lakhs.
Descriptive Summary with Sections as per Payment of Gratuity ACT 1972 with Amendments till 2015
Application of Gratuity Act [Section 1]:-
- Every mine, factory, oilfield, port, plantation and Railway Company.
- Every establishment or shop within the meaning of any law for the time being in force in relation to establishment and shops in a State, in which ten or more employees are or were employed on any day in the preceding twelve months.
- Such class of establishment or other establishments, in which ten or more workers/employees are or were employed on any day in the preceding twelve months, as notified by Central Government of India by way of a notification in the Official Gazette.
- If the provisions of the Gratuity Act 1972 become applicable to an establishment or shop once, the Act shall continue to apply to such establishment or shop even if the number of workers/employees falls below ten at any time in the future.
A worker/employee is eligible to receive gratuity under the Gratuity Act 1972, if he/she:-
- Is employed in an shop or establishment to which the Gratuity Act applies (Section 1)
- Is an employee as per Section 2(e).
- Has been in Continuous Service of not less than five Years – subject to some exceptions.
Application to whom and in what manner [Section 7]:-
- Employee shall made an application in written to the employer within thirty days from the day gratuity becomes payable.
- If the date of termination or superannuation or retirement is known in advance, the employee may apply in written to employer before thirty days of termination or superannuation or retirement.
Determination by employer [Section 7]:-
- Employer need to determine the amount of gratuity, as soon as it becomes payable.
- Employer also needs to provide a notice specifying the amount of gratuity to employee and controlling authority.
- Note: It’s the responsibility of employer to determine the amount of gratuity and provide notice to employee and controlling authority, irrespective of the fact whether an application for payment of gratuity has been made or not.
Payment of Gratuity:-
- Time limit – Within thirty days of gratuity becoming payable
- Maximum Amount – Currently maximum gratuity amount is Rs. 10,00,000.00
- Under the terms of a contract, settlement or award, an employee may be entitled to better terms of gratuity. Such a contract, settlement or award shall be valid & effectual.
Mode of Payment of Gratuity:-
· Cheque or demand draft; if so desired by the payee.
· Postal Money Order if gratuity payable amount is less than one thousand; if so desired by the payee. (After deducting the commission payable)