Understanding Gratuity: Can Anyone Explain How It Works?

Hi all,

Kindly provide information on Gratuity.

Regards,
Pooja

Hi.Pooja

Under the provision of Payment of Gratuity Act 1972.

Following are the Requisites

Applicability:Sec 1

Every factory, mine, oil field, plantation, port, railways, company, shop, establishment or educational institutions employing 10 or more employees.



Employee:Sec2(e)

All employees irrespective of status or salary

Entitlement:

On completion of five years' service except in case of death or

disablement

Sec.6 Rule 6

Nomination

To be obtained by employer after expiry of one year's service, in Form ‘F'

Maximum Ceiling: Sec 4(3)

Rs.3, 50,000

Rule 9:Penalties to the Employer

Imprisonment for 6 months or fine upto Rs.10, 000 for avoiding to make payment by making false state-ment or representation.

Imprisonment not less than 3 months and upto one year with fine on default in complying with the provisions of Act or Rules.

Qualifying period

On rendering of 5 years' service, either termination, resignation or retirement.

Rule 4:Display of Notice

On conspicuous place at the main entrance in English language or the language understood by majority of employees of the factory.

Sec.8 Rule 8

Recovery of Gratuity

To apply within 30 days in Form I when not paid within 30 days.After leaving the preset Employer

Sec.4(6)

Forfeiture of Gratuity

On termination of an employee for moral turpitude or riotous or disorderly behavior.Wholly or partially for willfully causing loss, destruction of property etc

The gratuity willl be calculated according to the formula:

Gratuity = Last drawn salary x 15x No. of years of service/26

I hope this will be of some help to you.

Rgds

Munam

Hi, thanks for the information. I would also like to share some information about Gratuity.

Gratuity is a lump sum that your employer pays you when you retire or resign from the organization. You do not need to contribute any portion of your salary towards this amount.

Gratuity is paid out at your superannuation (if you retire at the age of 58), when you retire (at any other age) or resign, and in the event of your death or being rendered disabled because of an accident or illness. You need to have at least five full years of service with an employer to qualify for gratuity. This rule is relaxed in the last instance. In the event of your death, the gratuity will be paid to your nominee.

Your employer must pay you your gratuity within 30 days. If he does not do so within this period, he will have to pay you simple interest on the amount. This interest will be paid from the date on which your gratuity was to be paid to you up until the date on which it is paid, at a rate that the government sets for the repayment of long-term deposits.

However, if the delay in the payment of gratuity was not caused by the employee, or if the employer has permission to make a delayed payment, this interest will not be paid.

Hope this information will also be useful to the forum.

With regards,

K. Jayavel

Hi,

Please find attached a presentation on The Payment of Gratuity Act.

Regards,
Ctraju

Hi All,

Just a small clarification on the same lines. When we talk about the last drawn salary, is it the gross salary, the net salary, or just the basic component of the salary? Please clarify.

Regards,
Vindhya

Thank you, Munam, for the detailed information.

As correctly asked by Vindhya, salary is considered in BASIC SALARY and not the gross/CTC, etc. Secondly, the number of years equals the number of completed years rounded off to the nearest one earlier. For example, if I completed 7 years and 6 months with my last basic being 26000/-, then my gratuity will be calculated as follows: Gratuity = (26000/26) * 15 * 7 = 105000/- INR.

I hope this clarifies the request.

Jagadish S.

I too have the doubt whether on gross salary or basic salary or what we get in hand after all deductions. Please clarify.

I hope I have clarified with an example. Anyone from the audience can shed more light on this.

Jagadish S.

Hi Friends,

To add and clarify, the maximum limit of Gratuity is Rs. 3.5 lakhs as per the Act for taxability purposes. Anything above Rs. 3.5 lakhs will be taxable. An employer can pay more than that, depending upon the company's policy.

Kindly refer to the language in the Act and have a correct interpretation through an expert as it is really tough.

Regards,
Ashish Dhomse