How Is Gratuity Calculated When Companies Merge? Seeking Clarity on My Case

I was an employee of X company, joined on 1st September 2005, and this company was taken over by Y company on 1st February 2009. With this takeover, it was a continuation of service. I left company Y in January 2012. Gratuity amount in X company was not part of CTC, and the Gratuity Act of 1972 was being followed there. However, in Y company, the gratuity amount was part of CTC. So, my queries follow like this:

a. How will the gratuity amount be calculated in this scenario?

b. Will I get the amount deducted by Y company separately and X company as per the gratuity formula (1st September 2005 - 1st February 2009)? Or will it be just calculated based on the number of years multiplied with the gratuity formula?

c. I presume this amount is non-taxable.

Gratuity Liability and Calculation

a) Gratuity is the liability of the company whether they have mentioned it in CTC or not. It is entered in CTC for books of account calculation, so you need not worry about this. Please check your employment status for continuous service in company Y as well.

b) The formula remains the same. Please note that no amount is supposed to be deducted from your salary as Gratuity. CTC represents the cost to the company.

c) It is non-taxable up to 10 lacs.

Regards

Gratuity Deductions and Tax Exemption Clarification

Legally, no deduction can be made by the company from the gross salary in the salary sheet towards gratuity since it is a statutory liability of the company only. If, however, the company has considered the gratuity liability in CTC for internal working purposes, it will not in any way affect the calculation of gratuity. Company Y will have to pay gratuity for the full period as usual.

Tax Exemption on Gratuity

As regards exemption from tax, I may clarify that the exemption up to Rs. 10 lakhs is not available to an employee in respect of each employer separately. This is the maximum exemption available for gratuity received from different employers taken together during his entire service period under different employers till retirement. Hence, if an employee receives gratuity of Rs. 10 lakhs each from two employers separately during his entire service period, the exemption available will be only Rs. 10 lakhs, and the balance Rs. 10 lakhs will be taxable.

Thank you, Setupathy. Should I have to get both the amounts deducted from salary from Company Y, which was part of CTC, and then based on the gratuity formula for the entire tenure (Company X + Y) or just Company X? Or will it just be based on the gratuity formula for the entire tenure (X + Y)? This is the confusion I am having.

By the way, I received gratuity based on the gratuity formula for the entire tenure (X + Y). Is this correct in my case, or should I also have to get the gratuity amount deducted as part of my salary?

Continuing from my earlier query. Suppose a company has a Gratuity component as part of CTC and it gets deducted monthly. When leaving the company after 5 years of completion, will they pay the gratuity amount as per the Gratuity formula, or will they pay the accumulated monthly over 5 years?

I joined my present company on 01.11.2007 and will complete 4 years and 5 months of service by 01.04.2012. I have a 3-month notice period for cessation of employment as per my appointment letter. I am planning to submit my resignation in the first week of April 2012 and will be working the 3-month notice period. Including my notice period, I will have a total service period of 4 years and 8 months with the company.

Gratuity Eligibility

Is it compulsory to complete 5 years of service for gratuity eligibility? Am I eligible for Gratuity Benefits for working for 4 years and 8 months? The company has a Group Gratuity Scheme through LIC of India.

Please send a quick reply.

Regards, Chandran.