Understanding Gratuity: Eligibility, Calculation, and Necessary Forms Explained

Hi all members, please tell me in detail about Gratuity. Please give answers to the following questions:

Q.1 - What is the eligibility for getting Gratuity?

Q.2 - What is the formula for calculating Gratuity? Please provide an example.

Q.3 - What forms are used for gratuity?

Q.4 - Do we need to send returns for this? If yes, where do we have to send them, and which form is used for this?

Please reply soon.

For your reference:

1. The employee needs to work a minimum of 5 years of continuous service with the company to be entitled to Gratuity, which can be given during the Full and Final settlement.

2. The formula for Gratuity is: Basic * Number of years * 1/2. The maximum limit for gratuity is ₹10,00,000 and is non-taxable.

There are no forms for Gratuity.

Thank you.

Let me correct that gratuity is calculated on 15 days of the average salary last drawn multiplied by the number of years of service. The daily rate of salary is derived by dividing the monthly salary by 26 and not exactly half of the monthly salary. To add one more, service of a fraction of a year of more than six months shall be treated as a full year. Therefore, if the employee had put in a service of 5 years, 6 months, and one day, he would be eligible for six years of gratuity.

Forms for Gratuity

The common forms available are Form I (used by the employee to claim gratuity), Form L (used for sanctioning gratuity), and Form F (used for collecting nomination from the employee). It is required that every establishment to which the Payment of Gratuity Act applies should get Form F from every employee who has completed one year of service. In addition to these, there are returns to be filed before the appropriate authorities, which may differ from state to state.

Since the topic has been discussed at length, you are requested to follow other threads on the subject, like eligibility for gratuity (as there exists controversy regarding entitlement after 4 years and 240 days of service), forfeiture of gratuity, etc.

Regards,
Madhu.T.K

You are required to give notice of the opening in Form A. Also, a nomination is required to be taken from the employee in Form F. You are required to display the abstract of the Payment of Gratuity Act in a prominent place in the company.

Gratuity Payment Conditions

Gratuity is payable upon resignation, retirement, superannuation, or on death or disablement due to accident or disease.

Regards

We have a similar case in our company. One of our employees resigned after 4 years and 9 months of service and has claimed a gratuity amount.

The article I referred to states that a 6-month block is applicable to those who have completed 5 years and above.

For example, if an employee resigns after 5 years and 7 months, they are entitled to a gratuity amount equivalent to 6 years of service. However, if the employee resigns after 4 years and 7 months, they are not entitled to 5 years of gratuity.

Could anyone please clarify the same?

Regards,
Kumar

Hi Lokesh, I found this PPT on CiteHR which summarizes every single doubt: https://www.citehr.com/444942-gratuity.html. Also, you can check the following links for a better and more detailed understanding:

Payment Of Gratuity Act 1972

Recent Amendments to Payment of Gratuity Act, 1972 « TalentMoon Blogs

FAQ under the Payment of Gratuity Act

Gratuity PDF (for reference) http://www.legalissuesforngos.org/ma...r/gratuity.pdf

We have a similar case in our company. One of our employees resigned after 4 years and 9 months of service and has claimed the gratuity amount. The article I referred to states that a 6-month block is applicable to those who have completed 5 years and above. For example, if the employee resigns after 5 years and 7 months, they are entitled to 6 years of gratuity amount. Whereas, if the employee resigns after 4 years and 7 months, they are not entitled to 5 years of gratuity. Could anyone please clarify the same?

Eligibility for Gratuity

Mr. Kumar, as per the act, the bare minimum period is 4 years, which is equivalent to 240 days = 4 years and 8 months, making him eligible for gratuity. You can refer to the above presentation and links to resolve any further queries.

Understanding the 6-Month Period

The 6-month period you suggested works as follows: After becoming eligible (i.e., completing 5 years of service), if you resign/retire in the first 6 months, the number of years served is rounded off to the previous year. If you resign/retire in the next 6 months, the number of years served is rounded off to the next year. For example, if you resign after 5 years and 4 months, gratuity is calculated on 5 years. On the other hand, if you resign after 5 years and 7 months, gratuity is calculated on 6 years.

Hope this information helps clarify things.

Eligibility for Gratuity

Q.1 - What is the eligibility for getting gratuity? If the employee stays in the organization for 5 or more years, they are eligible for gratuity. For example, if an employee stays with the organization for 4 years and 6 months, they are eligible. However, if the employee stays for 4 years and 4 months, then they aren't eligible.

Formula for Calculating Gratuity

Q.2 - What is the formula for calculating gratuity? Please explain with an example.

Formula Used:
Gratuity Calculation in India = [(Basic Pay + D.A) x 15 days x No. of years of service] / 26
Where,
D.A = Dearness Allowance.

Gratuity Eligibility:
1. Any person employed on wages/salary.
2. At the time of retirement, resignation, or superannuation, an employee should have rendered continuous service of not less than five years.
3. It is payable without completion of five years only in cases of death and disablement.

This gratuity calculator is applicable only for Indian employees.

Forms Used for Gratuity

Q.3 - What forms are used for gratuity? No forms are required.

Regards.

Eligibility for Gratuity

Eligibility: 5 years of continuous service.

Gratuity Calculation Formula

15 days' wages for every completed year at last drawn wages, e.g., Gratuity = Monthly Salary x 15 days x No. of years of service / 26.

Gratuity Forms

For Gratuity forms, visit: https://www.citehr.com/282195-requir...ml#post1530006.

Hope this information is useful.

Gratuity Calculation Concerns

I have a very serious doubt about how you work the gratuity calculation. Please don't come back and tell me 15 days' wages X 15/26, etc., etc. Please... I am well aware of this. My doubt is what exactly is this 15 days' wages. Ideally, in all their wisdom, whoever worked this out wanted the employer to shell out half a month's salary. But when you start calculating things, ignoring HRA, which is a significant component, and ignoring other allowances, which are another substantial amount from the salary, you are only left with Basic, and the 50% of that ultimately works out only to a QUARTER month's salary. And this is happily agreed to by all the so-called world-known Auditors, which makes the employers happy. But are the Labour Department and Gratuity competent authorities aware of this, and are they doing anything about this?

Kindly share your thoughts.

Regards,
V. Chithranath