Understanding Gratuity Limits: What's the Maximum Payout Under the 1972 Act?

I am in the process of completing the full and final settlement of one of the senior persons in the organization. My query is, what is the maximum amount one can pay under the Gratuity Act, 1972? If possible, please send your replies with documents that support the claim.

I thank you all for spending your valuable time in advance.

Regards

While the maximum amount of gratuity is Rs. 10 lakh, it should be noted that this amount is for the entire service period. If you have any documents proving that the employee has already received some gratuity from previous employer(s), you may consider the maximum amount of Rs. 10 lakh, including the previous gratuity amount, and only the balance is payable. However, as Mr. Negi suggested, the employer may grant any amount exceeding the limit under the Payment of Gratuity Act.

Regards

Gratuity Payment Responsibility

No, gratuity is not an amount provided collectively by all employers. It is the legal responsibility of each individual employer to pay gratuity to their employees who complete 5 years of service. The gratuity amount received by an employee from a previous employer does not count towards the maximum limit of Rs 10 lakhs. Any understanding contrary to this is incorrect.

Regards,
Varghese Mathew

[Phone Number Removed For Privacy Reasons]

Clarification on Gratuity Amount

Your assertion that the maximum gratuity amount of Rs. 10 lakh is for the entire service period is incorrect. I fail to comprehend the basis for your statement. What you have mentioned contradicts the Payment of Gratuity Act.

I fully support Mr. Varghese Mathew.

Regards, Kamal P

Thank you very much for the responses. However, I still have one query. According to the response, the maximum limit is 10L. In case somebody's gratuity amount is calculated as 25 lakhs, should we pay only 10 lakhs or 25 lakhs? In that case, up to 10 lakh is exempted from taxation, and the remaining amount of 15 lakh is taxed as per the tax bracket. Please let me know.

Regards

As per the Gratuity Act of 1972, there is no limit on the gratuity payment. The maximum exempted amount for gratuity payment is Rs. 10 Lakhs. Any amount exceeding Rs. 10 Lakhs will be considered a taxable component along with the regular component.

Even if the gratuity amount is more than 25 lakhs, only Rs. 10 Lakhs will be treated as the exempted amount, and the remaining Rs. 15 Lakhs will be considered a taxable component.

Regards,
Kalaiselvan.M

Dear Kalaiselvan, That means we can pay gratuity more than 10 lakhs, irrespective of taxation issues. Or is there any law that says you cannot pay gratuity more than 10 lakhs? Please let me know.

Kind regards,
Kiran Rai

Yes, we can pay the gratuity amount for more than 10 lakhs, and there is no law stating that gratuity cannot be paid for amounts exceeding 10 lakhs.

Regards,
Kalaiselvan M

Understanding the Gratuity Act Ceiling

Section 4(5) of the Payment of Gratuity Act stipulates that the gratuity eligible as per rules can be granted even though it exceeds the ceiling limit of Rs. 10 lakhs. If the employer has an agreement with financial institutions like the Life Insurance Corporation of India for the payment of gratuity to employees, the employee can receive the gratuity as per their eligibility, and LIC will grant the amount exceeding the ceiling limit.

Regards

When you pay gratuity more than 10 lakhs, you should deduct TDS as per his/her tax bracket. It is important; otherwise, the employer will not get the benefit as expenditure for more than 10 lakhs payment.

Regards,
Pramod Thakar
[Phone Number Removed For Privacy Reasons]

Please go through the latest amendments in the Gratuity Act yourself and look into the answers given by seniors. You will understand that as per the Act, the maximum Gratuity payable is Rs. 10 lakhs by an employer (not together by all employers, as somebody posted), but this does not prohibit an employer from paying a higher amount as Gratuity. Tax exemption will be available only for Rs. 10 lakhs, and any amount exceeding that will attract Income Tax, which has to be deducted from the gratuity payable. There is no confusion on this.

Regards,
Dr. Gopan

Understanding Gratuity Payments

Gratuity is a statutory payment made by the employer to the employee. Any employee who has served an organization for five years of continuous service, i.e., in the same organization, and it may be with a transfer within the group companies, is eligible for gratuity. The minimum gratuity year is the completion of five years of service. Fifteen days' salary is payable (basic + DA) per year; therefore, five years (minimum years) X 15 days' salary OR the entire years of completion of service. That means if an employee's completed years X 15 days' latest/last salary drawn by an employee.

For your knowledge, nowadays, no young employees, especially those who are technically/educationally qualified, complete two years of continuous service in the same company/organization due to job opportunities availability.

Dear Mr. Varghese Mathew & Mr. Prasoon, I am sorry for the misunderstanding on my part. In the Government Sector, there was a rule that when a person moves from one Government sector or PSU to another and transfers their gratuity from the previous employer to the new one, the gratuity would be calculated for the entire period of service, including time spent at previous organizations, with the total amount restricted to the ceiling. I applied this analogy and made the suggestion. Thank you for pointing out the mistake.

Regards

As per the Payment of Gratuity Act, 1972:

Section 4(3): The amount of gratuity payable to an employee shall not exceed ten lakh rupees.

Section 4(5): Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award, agreement, or contract with the employer.

Regards,
C. Thangavel
Coimbatore

I want to provide some input. Yes, up to 10 lakh is the exempted amount, but this 10 lakh is throughout an employee's full professional career; not something he/she can receive from only one employer.

Gratuity Processing Guidelines

Before processing the gratuity, you must obtain an undertaking regarding how much gratuity the employee has received from previous companies, whether it was taxable or non-taxable. For example, if it amounts to Rs 3 lakh, and he is now entitled to Rs 12 lakh, then you should process 7 lakh as exempted and 5 lakh as a taxable amount.

Best regards,
Jaykant Singh