Gratuity Rules: Does 34 Years of Service Limit Payout to 16.5 Months?

Is there any specific rule that the amount payable for gratuity should not exceed the equivalent of payment for 16 and a half months if an employee has completed 34 years of service? Will this impact the gratuity amount according to the regulations of the Gratuity Act?

There is no limit. It will be taxed if it exceeds 10 lakhs. The calculation will be basic * 15/26 * service years.

There is no limitation on gratuity payment. Up to 10 lakhs, we can get a tax exemption. Tax is applicable over and above 10 lakhs. For example, if a person is receiving 11 lakhs as gratuity, 10 lakhs will be tax-exempt, and one lakh is taxable as per the tax slabs.

I shall quote a provision from Form-U (Abstract of the Act and Rules) of the Gratuity Act as under:

Gratuity Payment Limit

"6(3) The amount of gratuity payable to an employee shall not exceed twenty months' wages. [Section 4(3)]."

Abbas.P.S

Quotation from Form-U of the Gratuity Act

I shall quote a provision from Form-U (Abstract of the Act and Rules) of the Gratuity Act as follows:

"6(3) The amount of gratuity payable to an employee shall not exceed twenty months' wages. [Section 4(3)]."

Regards,
Abbas. P.S

Now, there is no twenty months' wages. As per a recent amendment, the maximum amount of gratuity payable to an employee shall be Rs. 10 lakhs.

Amendment to the Payment of Gratuity Act

Section 4(3) of the Payment of Gratuity Act was amended in the year 2010. The maximum amount of gratuity payable is Rs. 10 lakhs, as pointed out by Trisha_hr.

With regards,

Gratuity Ceiling and Monthly Wages

Section 4(3) of the Payment of Gratuity Act was amended in the year 2010. The maximum amount of gratuity payable is Rs. 10 lakhs, as pointed out by Trisha (HR).

Dear Trisha and Harikrishnan, no doubt, the ceiling amount limit has been increased from 3.5 lakhs to 10 lakhs. However, the question remains whether there is any ceiling in terms of monthly wages. I have referenced the provision from Form U. Kindly review Form U.

Regards,
Abbas P.S.

Please indicate the rules under which the Form U you are referring to has been framed. This is because the Central Government and the various State Governments have framed rules under the Payment of Gratuity Act, as both the Central Government and the State Governments are appropriate governments under the Payment of Gratuity Act. Moreover, the rules and the forms prescribed under the rules are framed by either the Central Government or the State Government. The amendment to the Payment of Gratuity Act was made by an Act of Parliament. It is a fundamental principle of law that rules framed by the government under any act and the forms or registers prescribed under the rules cannot be contrary to or at variance with the provisions of the law under which they are framed.

The Form U that you are referring to, if it had been prescribed under the rules framed under the Payment of Gratuity Act and as it is at variance with the provisions of the Act, this form, if it is still there, is invalid.

With regards,

I think you didn't go through the Payment of Gratuity completely. Form U is part of the Act. If you feel any contrary, kindly take it up with the appropriate authorities.

Even though there is a ceiling limit, an employer may give in excess of that. However, the IT exemption will be up to Rs. 10 lakh only.

Regards,
Abbas. P. S

Dear Mr. Abbas, in your post above, you mentioned "6(3)" and also Section 4(3). What does "6(3)" stand for? Will you be kind enough to enlighten us?

In the post referred to above, you state that the maximum amount of gratuity shall not exceed twenty months. In another post, you mention that the maximum amount of gratuity is Rupees ten lakhs. Since you seem to have thoroughly reviewed the Payment of Gratuity, could you please explain how to reconcile the two provisions you have quoted? If you could provide some decided cases on this issue, it would be helpful to all.

With regards.

First of all, kindly go through Form U. Then your doubts on 6(3) and 4(3) will be cleared. 6(3) is the clause of the form, and the rest is a quotation of that clause.

I have no doubt that the ceiling amount of gratuity is Rs. 10,00,000. But it was not hiked from 'twenty months salary', but Rs. 3,50,000. The original query was whether there is any ceiling regarding monthly salary, viz. 16.5 times. Accordingly, I have quoted what I saw in Form U.

I didn't claim that I have gone completely through the Act. But I am sure that you missed Form U. Without Form U, the Act will not be complete.

Even though there are ceiling limits, an employer can give a higher amount. But normally, provision 10(10) of the Income Tax rule will allow tax exemption up to Rs. 10,00,000.

Regards,
Abbas. P. S.

Dear Mr. Abbas, There is a variation between Section 4(3) and the Form U quoted by you. Will you please help me to reconcile the variations? Which will prevail: whether Rs. 10,00,000 as the maximum amount of gratuity or the contents of Form U quoted by you? In other words, whether the monetary limit fixed by the Payment of Gratuity Act will prevail or whether the month's salary limit indicated in Form U will prevail.

I have consulted some senior lawyers on this issue. They are unanimous in their view that the Act will prevail over the Rules, and as Form U is part of the Rule, the provisions of the Act will prevail over Form U. Anyhow, I would very much like to take your considered view on this issue.

With regards,

It's true, initially, the Gratuity Act of 1972 provided a ceiling of twenty months' wages for the payment of gratuity, which was replaced by a monetary ceiling of Rs. 50,000/- through amendments effective from 1.10.1987. This was enhanced to Rs. one lakh through an amendment that came into force on 24.5.1994, which was further enhanced by the Payment of Gratuity (Amendment) Act, 1998, from Rs. one lakh to Rs. 3.50 lakh with effect from 24.9.1997.

Presently, through the Payment of Gratuity (Amendment) in 2010, the gratuity ceiling was enhanced from Rs. 3.5 lakh to Rs. 10 lakh.

Thanks