KK!HR
Management Consultancy
Suresh2511
Labour Consultant
Satishrw
Service
Shukla.chirag
Hr Executive
+2 Others

Kindly confirm on 5.7 years of continues services staff will eligible for 5 years gratuity or 6 years gratuity
6th February 2018
The service of more than 5 years and six months would render you eligible for six years gratuity by a combined reading of Sections 4(2) & 2A. As per Section 4(2) gratuity is payable for every completed year of service and for every part in excess of six months. Section 2A defines continuous service of more than 120 days in a period of six months as six months service under the Act. So seven months continuous service will qualify for one additional year of service for calculation of gratuity and accordingly the calculation of gratuity has to be for six years.
7th February 2018 From India, Mumbai
Gratuity
Gratuity is a defined benefit plan and an important form of social security employee benefits. It is one of the many retirement benefits offered by the employer to the employee upon leaving his job. Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. An employee may leave his job for various reasons such as retirement, by way of voluntary retirement, resignation or for a better job elsewhere. Every factory or establishment would pay gratuity to its employees if employees are more than 10; according to Payment of Gratuity Act, 1972.
Gratuity is calculated on Basic+DA. It is TAXFREE upto 10 Lakhs.
Eligibility to receive gratuity
An employee will be eligible for receiving gratuity:
Only if he completes 4years 6months 1day when he/she resigns from the company for continuous service with a single employer
When he/she retires from the company
When he/she dies or suffers disability due to illness or accident
Note :
6 months+1 day of a year can be counted as one year.
Examples for consideration of years :
1) 7 years 6 months 1 day = 8 years (considered)
2) 7 years 6 months = 7 years (considered)
3) 7 years 4 months = 7 years (considered)
Calculation of gratuity :
Gratuity = (last payslip’s Basic+DA) * (15/26) * (number of years serviced)
Example :
Consider Basic+DA = 6500
Time period = 6 years 7 months
Calculation :
Gratuity = (Basic+DA) * (15/26) * no. of years serviced
=(6500) * (15/26) * 7
=26,250
Employee can give nomination by filling ”Form F” at the time of joining the company (during new joinee formalities). Employee can nominate one or more members of his/her family to receive the gratuity amount in the event of death of the employee.
To claim the amount of gratuity:
Form I
Application for gratuity.
To be submitted by the employee within 30 days of gratuity being payable.
Form J
Application of gratuity by nominee.
To be submitted by the nominee to the employer within 30 days of gratuity being payable.
Form K
Application of gratuity by legal heir.
To be submitted to the employer within a year of gratuity being payable.
Form L
Notice for payment of gratuity.
On verification of claims, the employer issues a notice to the employee/nominee/legal heir about the amount of gratuity payable within 15 days of the receipt of notice. The payment should be made within 30 days of the receipt of application.
Tax Exemption on Gratuity payment to an employee as per Income Tax Act
For government employees, entire amount of gratuity received on retirement or death is exempted from income tax.
In case of non-government employees, income tax rules on gratuity depend on whether employees are covered under the Payment of Gratuity Act, 1972 or not. For non-government employees covered under the Gratuity Act, the income tax exemption on gratuity received is least of the following:
15 days salary based on the salary last drawn for every completed year of service or part thereof in excess of 6 months. Therefore the amount that shall be exempt from total Gratuity paid is calculated as Last drawn salary(Basic+DA) * 15/26 * years of service.
Maximum amount specified by the government which is currently Rs. 10 lakhs.
Actual gratuity received.
For non-government employees not covered under the Payment of Gratuity Act, the income tax exemption on gratuity received is least of the following:
Half month’s average salary for each completed year of service. While calculating completed years, any fraction of a year shall be ignored.
Maximum amount specified by the government which is currently Rs. 10 lakhs.
Actual gratuity received.
8th February 2018 From India, Hyderabad
If there is a clause of 120 days consideration for fraction year than even 5.4 years will also eligible for 6 years gratuity not for 5 years and 4.4 years will eligible for 5 years. Plz clarify.
8th February 2018
Please note that 4 yrs. 6 months 1 day doesn't make you qualify for gratuity. One has to put continuous service of minimum 4 yrs and >240 days to qualify for gratuity payment.
Suresh
8th February 2018 From India, Thane
As regards eligibility of gratuity with 4.4 years or any thing upto 4years nd 6 months service is concerned, it is not fulfilling the eligibility of being 'in excess of six months' service.
9th February 2018 From India, Mumbai
Dear Suresh,
There has not mentioned anywhere as 240 days completion for concern the Gratuity payment.
9th February 2018 From India, Mumbai
Satish
In the fifth year of continuous service ,minimum 240 days should be completed where establishment works for 6 days a week.
9th February 2018 From India, Pune
In CTC structure of employee if Gratuity amount is mentioned , and if he or she has completed less than 5 years of service in organization , then he or she is eligible to get gratuity amount in Full and final settlement?
10th February 2018 From India, Pune
Just because Gratuity amount is mentioned in CTC does not mean you will get gratuity.
Minimum term of continuous service has tone rendered for eligibility to gratuity.
10th February 2018 From India, Pune
Expert of the Act is as follows:-
4. Payment of Gratuity.- (1) Gratuity shall be payable to an employee on
the termination of his employment after he has rendered continuous service for
not less than five years,-
(a) on his superannuation, or
(b) on his retirement or resignation,
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be
necessary where the termination of the employment of any employee is due to
death or disablement:
1[Provided further that in case of death of the employee, gratuity payable to
him shall be paid to his nominee or, if no nomination has been made, to his
heirs, and where any such nominees or heirs is minor, the share of such minor,
shall be deposited with the Controlling Authority who shall invest the same for
the benefit of such minor in such bank or other financial institution, as may be
prescribed, until such minor attains majority].
Explanation.- For the purposes of this section, disablement means such
disablement as incapacitates an employee for the work which he was capable of
performing before the accident or disease resulting in such disablement.
(2) For every completed year of service or part thereof in excess of six
months, the employer shall pay gratuity to an employee at the rate of fifteen days'
wages based on the rate of wages last drawn by the employee concerned:
Provided that in the case of a piece-rated employee, daily wages shall be
computed on the average of the total wages received by him for a period of three
months immediately preceding the termination of his employment, and, for this
purpose, the wages paid for any overtime work shall not be taken into account:
Provided further that in the case of
2[an employee who is employed in a
seasonal establishment, and who is not so employed throughout the year], the
employer shall pay the gratuity at the rate of seven days' wages for each season.
3[Explanation.-In the case of a monthly rated employee, the fifteen days'
wages shall be calculated by dividing the monthly rate of wages last drawn by
him by twenty-six and multiplying the quotient by fifteen.]
(3) The amount of gratuity payable to an employee shall not exceed 4[ten
lakh rupees].
(4) For the purpose of computing the gratuity payable to an employee who is
employed, after his disablement, on reduced wages, his wages for the period
preceding his disablement shall be taken to be the wages received by him during
that period, and his wages for the period subsequent to his disablement shall be
taken to be the wages as so reduced.
(5) Nothing in this section shall affect the right of an employee to receive
better terms of gratuity under any award or agreement or contract with the
employer.
10th February 2018 From India, Madras
After completion of 5 years service additional more than 6 months counted for one year and less than 6 months ignore for calculating service period,we are bound to implement this formula as per gratuity Act.So the 5.7 years shall be counted for 6 years ,not five years.
16th February 2018 From India, Jalandhar
After completion of 5 years service additional more than 6 months counted for one year and less than 6 months ignore for calculating service period,we are bound to implement this formula as per gratuity Act.So the 5.7 years shall be counted for 6 years ,not five years.
16th February 2018 From India, Jalandhar
In gratuity act, for 6 months continuous service is defined by 120 days working including leave, weekly off, paid holiday, absent without leave. In such scenario even on 5.4 years, staff eligible for 6 years gratuity. Needs clarity on it.
18th February 2018
Model stading orders in marathi
20th February 2018 From India, Thane
What is the impact of labour code on social security 2018, in India ?
7th May 2018 From India, Mumbai
#Anonymous
After completion of 5 years service additional more than 2 months. Will I get my Gratuity in consolidated Salary. This is my consolidated Salary Rs.11525/- per month.
10th October 2018 From India, Mumbai
Please response me as soon as possible.
10th October 2018 From India, Mumbai
Dear Manisha,
You will get gratuity for 5 years i.e.
Basic+DA x 15/26 x 5 = your gratuity amount. You have mentioned that you are getting consolidated salary of Rs.11,525/- (is there any bifurcation such as Basic, HRA, other allowance or any other allowance? if yes, you will get gratuity on Basic salary x above formula) if not, your gratuity will be as under:
11525 x 15/26 x 5 = 33,245 based on your above statement.
Regards,
Suresh
10th October 2018 From India, Thane
Hello Sir/Madam,
Greetings. May anyone kindly clarify the number of years to be considered, 6 years or 7 years, for gratuity computation/payable to an employee who served 6 years, 5 months and 10 days. Thank you
18th September 2019
Dear Abhiprakash,
Even if you work for 6 years 6 months you are eligible for gratuity for 6 years only. >6months = 1 year.
Regards,
Suresh
18th September 2019 From India, Bangalore
I hope the below article may help you in understanding the requirement of Accounting and Funding for Gratuity Benefits.
1. An Overview Gratuity Benefits
Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit from the company. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of 5 years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
2. Calculation of Gratuity Benefits
Gratuity is a statutory right of employee whoever completes 5 years in the same organization and is a terminal benefit. It means, Gratuity amount will be determined when monthly terminal wages of the employee are known to the company. The terminal wages will include Basic & Dearness allowance only. The Gratuity Benefits are calculated using the following formula:-
(15/26) multiplied by (No of Completed Years on Exit) multiplied by (Terminal Wages)
3. Factors affecting Quantum of Gratuity Benefits
Gratuity Benefits changes with the change in the following:-
(a) Past Service of Employee in the Company,
(b) Increase in wages of Employee in the Company,
(c) Change in Benefit Formulae of the Gratuity Benefit due to the amendment in the Act,
(d) Change in Ceiling Limit on Gratuity Benefits due to the amendment in the Act,
(e) Change in Vesting Condition for eligibility of Gratuity Benefits due to the amendment in the Act,
The impact of the above Factors on Gratuity Benefits can be understood by the following Examples :

(a) Change Past Service of Employee in the Company.
Mr. A Joins the Company with a Basic Pay of Rs. 2,60,000/- per month and there is no change in basic salary, only his Past Service Change then Gratuity Payments for the next 5 years will be:-
On Completion of 1 Yr - (15/26)* 2,60,000*1 = 1,50,000/-
On Completion of 2 Yrs - (15/26)*2,60,000*2 = 3,00,000/-
On Completion of 3 Yrs - (15/26)*2,60,000*3 = 4,50,000/-
On Completion of 4 Yrs - (15/26)*2,60,000*4 = 6,00,000/-
On Completion of 5 Yrs - (15/26)*2,60,000*5 = 7,50,000/-
The above amounts are subject to Ceiling Limits on Gratuity Benefits applicable.
(b) Increase in wages of Employee in the Company.
Mr. A Joins the Company with a Basic Pay of Rs. 2,60,000/- per month and there is the change in wages@10%, then Gratuity Payments for the next 5 years will be:-
On Completion of 1 Yr - (15/26)* 2,86,000*1 = 1,65,000/-
On Completion of 2 Yrs - (15/26)*3,14,600*2 = 3,63,000/-
On Completion of 3 Yrs - (15/26)*3,46,060*3 = 5,98,950/-
On Completion of 4 Yrs - (15/26)*3,80,670*4 = 8,78,460/-
On Completion of 5 Yrs - (15/26)*4,18,730*5 = 12,00,788/-
The above amounts are subject to Ceiling Limits on Gratuity Benefits applicable.
(c) Change in Benefit Formulae of the Gratuity Benefit due to the amendment in the Act.
Mr. A Joins the Company with a Basic Pay of Rs. 2,60,000/- per month, His increment in wages@10%, and due to changes in the Gratuity Factor as 1/1 from 15/26 then Gratuity Payments for next 5 years will be:-

On Completion of 1 Yr - (1/1)*2,86,000*1 = 2,86,000/-
On Completion of 2 Yrs - (1/1)*3,14,600*2 = 6,29,200/-
On Completion of 3 Yrs - (1/1)*3,46,060*3 = 10,38,180/-
On Completion of 4 Yrs - (1/1)*3,80,670*4 = 15,22,660/-
On Completion of 5 Yrs - (1/1)*4,18,730 *5 = 20,93,660/-
The above amounts are subject to Ceiling Limits on Gratuity Benefits applicable.
(d) Change in Ceiling Limit on Gratuity Benefits due to the amendment in the Act.
Mr. A Joins the Company with a Basic Pay of Rs. 5,00,000/- per month, His increment in wages@10%, and due to changes in Ceiling Limit from 10 Lakhs to 20 Lakhs then Gratuity Payments for the next 5 years will be:-

Case 1 - When Gratuity Ceiling is 10,00,000/-
On Completion of 1 Yr - (15/26)* 5,50,000*1 = 3,17,308/-
On Completion of 2 Yrs - (15/26)*6,05,000*2 = 6,98,077/-
On Completion of 3 Yrs - (15/26)*6,65,500*3 = 11,51,827/- Company liable to pay 10,00,000/-
On Completion of 4 Yrs - (15/26)*7,32,050*4 = 16,89,346/- Company liable to pay 10,00,000/-
On Completion of 5 Yrs - (15/26)*8,05,255*5 = 23,22,851/- Company liable to pay 10,00,000/-
Case 2 - When Gratuity Ceiling is 20,00,000/-
On Completion of 1 Yr - (15/26)* 5,50,000*1 = 3,17,308/-
On Completion of 2 Yrs - (15/26)*6,05,000*2 = 6,98,077/-
On Completion of 3 Yrs - (15/26)*6,65,500*3 = 11,51,827/-
On Completion of 4 Yrs - (15/26)*7,32,050*4 = 16,89,346/-
On Completion of 5 Yrs - (15/26)*8,05,255*5 = 23,22,851/- Company liable to pay 20,00,000/-
Case 3 - When Gratuity Ceiling is 30,00,000/-
On Completion of 1 Yr - (15/26)* 5,50,000*1 = 3,17,308/-
On Completion of 2 Yrs - (15/26)*6,05,000*2 = 6,98,077/-
On Completion of 3 Yrs - (15/26)*6,65,500*3 = 11,51,827/-
On Completion of 4 Yrs - (15/26)*7,32,050*4 = 16,89,346/-
On Completion of 5 Yrs - (15/26)*8,05,255*5 = 23,22,851/-
(e) Change in Vesting Condition for eligibility of Gratuity Benefits due to the amendment in the Act.
In the above examples for (a) to (d), If an employee leaves the company before completion of 5 years then "Nil" gratuity benefit is payable in the following events :
(a) on his superannuation, or
(b) on his retirement or resignation.
Case 1 - When Vesting Condition for eligibility is 3 years, Company will be liable to pay gratuity benefit on completion of 3 years in event of his superannuation, on his retirement or resignation.
Case 2 - When Vesting Condition for eligibility is 2 years, Company will be liable to pay gratuity benefit on completion of 2 years in event of his superannuation, on his retirement or resignation.
Case 3 - When Vesting Condition for eligibility is 1 year, Company will be liable to pay gratuity benefit on completion of 1 year in event of his superannuation, on his retirement or resignation.
Gratuity Benefits are long term benefits and are subject to the above changes, so it becomes mandatory for Companies to make proper Accounting/Funding arrangement for Gratuity Benefits.
4. Provisions for Employer under Payment of Gratuity Act 1972 (Amended)
Section 7 of the Act has kept the obligation for payment of gratuity act on the shoulders of the employer, few provisions of this section act are listed below:-
i. As soon as Gratuity becomes payable, it employers responsibility to determine the amount of gratuity and inform it to an employee in writing (Refer subsection 2 of Section 7 of the Act).
ii. The employer shall arrange to pay the amount of gratuity within 30 days from the date when it becomes mandatory. (Refer Sub-section 3 of Section 7 of the Act).
iii. If the amount of gratuity is not paid within 30 days then the amount of gratuity and simple interest will be paid by the employer to the employee for the duration when the payment is not made to the employee. (Refer Sub-section 4 of Section 7 of the Act).
5. Accounting/Funding Options for Gratuity Benefits
Gratuity Liability increase exponentially with the increase in wages of employee and service period of the employee. Also, it is employers responsibility to pay the gratuity to the employee in any case. Companies have generally 2 options for discharging the Gratuity Liability: -
1. Pay as go options – In this option, the Companies makes provision of Gratuity Liability by taking an Actuarial Valuation Report/Certificate from Actuary to Comply with the requirements of following Accounting Standards issued by the Regulators :-
a. AS 15 (Revised 2005)
b. IndAS 19
c. IAS 19 (Revised 2011)-IFRS
In Indian context, Companies falls in following three categories based on the basis of compliance criteria mentioned in Accounting Standards :-
(i) SME - In this case, company needs to disclose details as required for Clause (l) of Para 120 of AS 15 (Revised 2005)
(ii) Non - SME - In this case, company needs to disclose details as required for Para 120 of AS 15 (Revised 2005)
(iii) Companies with Net-worth more 250 cr. - In this case, companies and their subsidiaries has to give disclosure of in compliance of IndAS 19 with comparative numbers of previous 2 years.
2. Funding Option –In this option, Management of Company make decision based on the Gratuity Liability Computed and Certified by An Actuary to creates an Irrevocable Trust. There are 2 major benefits to the company by creating an Irrevocable Trust:-
(i) Contribution into Approved Trust is allowed as deductible Expense : - Provision of Gratuity Liability shown in the Balance Sheet is not allowed as deduction whilst computing net Income for Income Tax ((Refer Section 47A (7) of Income Tax Act 1961) whereas Initial and Annual Ordinary Contribution made by company into an Approved Gratuity Trust (Subject to condition specified in Income Tax Rules 103 & 104) is allowed as deductible expense under Section 36 (1) (v).
(ii) Interest received from Investment of an Approved Gratuity Trust is also exempted as Income Tax :- Interest received from Investment of an Approved Trust is also exempted as Income under Section 10 (25) (iv) of the Income Tax Act, 1961.
In Indian Context, Companies have 2 options based on the Management of Fund of an Approved Gratuity Trust for making the Funding Arrangement for Gratuity Liability Management.
A. Privately Managed
B. Insurance Company Managed
For more details or consultation/Advise on the above matter, you may contact me at 9211637063 or email me your queries at
Tikaram Chaudhary
Gratuity & Leave Encashment Trust Fund Consultant
(Corporate Consultant with more than 10 Years of experience in providing Support Services for Actuarial Valuations in compliance of AS 15 R, IndAS 19 & IAS 19 R under Gratuity and Leave Encashment and Formation of Gratuity and Leave Encashment Trusts)
Office Address : R 11, F/F, R Block, Vikas Nagar, New Delhi -110059
Mobile Number : 9211637063
Email Id :
LinkedIn Profile : https://www.linkedin.com/in/tika-ram...hary-a5727848/
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Blog: http://gratuitytrustfundconsultant.blogspot.com
Website: https://gratuity-trust-fund-consulta...business.site/
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3rd October 2019 From India, Delhi
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