Understanding Payment of Gratuity Act: Calculation, Taxation, and Employee Benefits Explained

Hi All,

I need clarification on the payment of Gratuity. If an employee's gratuity amount exceeds 10 lakhs, then what amount should be paid to the employee as the maximum gratuity amount should not exceed 10 lakhs according to the Gratuity Act - Amendment 2010. Kindly suggest.

Regards, Shilpa

Hi Shilpa,

If Gratuity exceeds as per Gratuity Act set by the government, no need to pay. If the management wants to pay, we can pay by other names like incentives, attendance bonuses, etc.

Dear Ms. Shilpa,

The maximum Gratuity amount payable is Rs. 10,00,000/- above which it's left to management's discretion. Till Rs. 10,00,000, it's non-taxable, and above it is taxable.

Hello all,

How can I calculate gratuity? What are the rules and regulations for the same? Please advise.

Regards,
nakshatram

Dear Nakshatram,

Please go through section 4 of the Payment of Gratuity Act, 1972 for the calculation of gratuity.

R.N.Khola
(LL&IR)

*Also Senior Vice President, Labour Law Advisers Association, Gurgaon.

www.skylarkassociates.com

Hello, everyone.

How do I calculate gratuity? What are the rules and regulations for the same?
Please suggest.

Regards,
Nakshatram

Dear Nakshatram,

In short, the Act itself is called the Payment of Gratuity Act, 1972. Applicability: Every factory, mine, oil field, plantation, port railway company, shop, establishment, or educational institution employing 10 or more employees. Entitlement is granted upon the completion of five years of continuous service. Wages for calculation (Basic + DA): 15 days' wages for every completed year as if the month comprises 26 days at the last drawn wages.

Calculation:
a) Piece-rated employees: 15 days' wages for every completed year on an average of 3 months' wages.
b) Seasonal employees: 7 days' wages for every completed year of service.

Gratuity = Last drawn salary * 15 * Number of completed years (five and above) / 26. Ceiling Limit: Rs. 10,00,000. For more details, please Google.

The Payment of Gratuity Act does not restrict the amount to Rs. 10,00,000. The claim to the employee and the income tax exemption is Rs. 10,00,000. However, if management wishes, more than Rs. 10,00,000 can be paid towards gratuity itself.

Abbas.P.S

What is the eligibility in the Gratuity Act? If an individual is a registered employee of a factory for 4 years, 5 months, and 29 days, is he eligible for gratuity under the act?

Dear S. P. Gupta,

Welcome to CiteHR.

According to the Payment of Gratuity Act, 1972, he is not eligible for gratuity payment.

R.N. Khola

Dear Swamiprasad,

The subject matter of this thread is Payment of Gratuity; however, I would like to inform you that we are required to refer to Chapter VIII on annual leave with wages in the Factories Act, 1948, specifically Section 79 to address your query.

R.N.Khola
(LL&IR)

Dear Mr. Khola,

I have worked in a company for nine years and am receiving a Gratuity of Rs. 3,37,000.00 for nine years of service. The company has accrued Gratuity based on the gross salary of every employee. Could you please advise me if I need to pay Income Tax on this amount or not? This is because we do not have a Basic and DA system for Gratuity. Additionally, for your information, the company is contributing to PF on the higher side for everyone, with a maximum of Rs. 6000.00.

Now, the auditor is suggesting that I need to pay Income Tax on the Gratuity amount as it is on the higher side. I would be grateful if you could provide a response at your earliest convenience.

Thanks in advance.

Kuldip

I have worked in a company for nine years and am receiving gratuity amounting to Rs. 3,37,000.00 for the nine years of service. The company has accrued gratuity based on the gross salary for every employee. Could you please advise me on whether I need to pay income tax on this amount? This is because we do not follow the Basic and DA system for gratuity. Additionally, for your information, the company is contributing towards PF on the higher side for everyone, with a maximum of Rs. 6000.00.

I would be grateful if you could respond at your earliest convenience.

Thanks in advance.

Regards,
Kuldip

Gratuity Payment in Case of Employee's Death

If a person dies after one year, is the company liable to pay gratuity?

Thank you for reaching out with your question. In the unfortunate event of an employee passing away after one year of service, the company may indeed be liable to pay gratuity as per the terms of the employment contract or local labor laws. It's important for both employers and employees to be aware of the specific provisions regarding gratuity payments in such circumstances to ensure proper handling of the situation.