Is Our Company Obligated to Pay Retirement Gratuity if an Employee Hasn't Hit 5 Years?

Dear Seniors, One of our employees has completed four years and is reaching the retirement age next month as per the employment contract with the company. As per the Gratuity Act, gratuity is payable if:

Payment of Gratuity

Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years:

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

I need to know about retirement gratuity. As he has not completed 5 years or even 4 years and 8 months, is the company still liable to pay him retirement gratuity? Requesting you to please elaborate on this.

Thanks!
Saunee

Dear Saunee,

No, he is not entitled to receive any gratuity amount from the employer.

With Regards,
R N KHOLA

Thank you, Mr. Khola.

There is nothing called "retirement gratuity"; it is only the gratuity paid to people on completion of the prescribed time.

Regards,
Saunee

Hi Neesu,

Can you please help with the separation process? This is my first time handling such a case. Should we ask the employee to resign, or should we send a letter stating the end of services due to retirement? Is there a prescribed procedure for this?

Regards,
Neesu

Understanding Gratuity Payments

The Gratuity Act requires five years of service. However, if the company has included the gratuity amount per month as part of the CTC in the appointment letter, and the employee has a copy of this CTC breakup, he can request the gratuity amount considered in his CTC, even if he has not completed five years. Companies sometimes exhibit generosity by granting gratuity even if the employee has not completed five years, especially if the employee has contributed significantly to the business.

Merriam-Webster Dictionary defines gratuity as "something given voluntarily or beyond obligation usually for some service."

Dear Viewers,

The gratuity ceiling has been enhanced from Rs. 10 lakhs to 20 lakhs from 1st Jan. 2016 vide Notification number 38/37/2016 dated 04.08.2016. What would be the impact on income tax calculation for those employees who have been paid gratuity but benefited through this change from 1st Jan to 31 March 2016?

Kind regards,