Is It Fair to Receive Gratuity Now? Navigating Legal and Tax Concerns in My Company Transition

I have completed 5 years in my company, and now the company is changing its status from a Liaison office to an India Private Limited. They are also giving gratuity to all employees, even those who have not completed 5 years.

Legal Implications of Gratuity Distribution

My question is, is it legal to give gratuity at this stage? I may continue working in the same company for another 5 years or more, and the gratuity will be based on the last salary drawn. I feel like I am at a disadvantage in this situation.

Tax Implications of Gratuity

On this amount, I will also have to pay income tax, whereas gratuity up to 3.5 lakh is tax-free as of today, and after April 1st, 2010, it will be tax-free up to 10 lakh. Please advise on my issue.

Thank you.

You have rightly understood the situation. In my opinion, they are giving you the full and final payment for the services rendered under the previous company. They will provide you with a fresh offer. They cannot forcibly give the gratuity amount without any cause, which is not in line with the requirements of the law. If they are offering payments under any scheme, then go through the scheme carefully.

Opinions/comments submitted as requested.

With Regards,
R.N.Khola

Thank you, Mr. Khosla, for the response. You are correct; the company is providing full and final payment for the services and issuing a new offer letter. Will my gratuity amount be taxable? Please advise.

Dear Khosla ji,

I have one query regarding the calculation of gratuity. My company's working days are Monday to Friday, i.e., 5 days a week. They calculate the monthly salary based on working days only. The company is still running under the old name, and increments will be effective from 01 April 2010.

Will the calculation be based on the enhanced salary or the salary as of 31st March 2010? Please advise on the formula in this case.

Thanks in advance.

Regards,
Kuldip

Dear Kuldip,

The gratuity amount calculation will be made keeping in view the rate of wages per month as on the date of leaving service with the employer.

With Regards,
R.N.Khola