Gratuity Dilemma: Should Maternity Leave Count Towards Service for Gratuity Eligibility?

Gratuity Payable: Seeking Suggestions

Kindly give your valuable suggestions on Gratuity Payable. If an employee works for 5 years, he/she is eligible to receive Gratuity.

Case Scenario

1. A woman employee goes on ESI Maternity Leave after 4.5 years of service.
2. After completing 182 days of Maternity Leave, she explained that she is unable to return to work as she needs to take care of her child. The management accepted her decision.
3. When preparing the Full & Final Settlement, should we consider her Maternity Leave provided by ESI as part of her service period?
4. Should we provide Gratuity to her or not?

Continuous Service and Maternity Leave

Continuous service will include the days any employee was on authorized leave. Maternity leave refers to the days a woman employee is authorized to take, whether from ESI or from the company. If she has taken 6 months of leave, that period will be considered as a service period for the purpose of deciding gratuity. Therefore, after 4.5 years, if a woman employee goes on maternity leave and returns after the permitted 182 days and then resigns, she should be paid gratuity considering her 182 days as a service period.

Dear Kumaresh,

Yes, keeping in mind the above situation, the employee is entitled to gratuity. Also, you can ask for the notice period or, in lieu of notice period payment, from the employee if the same clause is available in your appointment letter.

Clarification on Applicability of TDS on Payment of Gratuity

Company-A was taken over by Company-B in June 2015 under an Operation, Management & Maintenance Agreement (OMMA) along with the Plant & Machinery, and the Employees under a Dual Employment Agreement (DEA).

One DEA employee, aged 51+ years, has now been inducted into Company-B with effect from 01/05/2018, after having resigned from both Company-A and the DEA on 30/04/2018. This employee has a total reckonable service of 29 years... [Company-A: 26 years + Company-B: 3 years].

Now, Company-B wants to settle the full & final for the period prior to May 2018 and has calculated the gratuity amount for a total of 29 years of service amounting to approximately INR 12.00 Lakhs... [Company-A: Rs. 10.50 L + Company-B: Rs. 10.25 L].

Please clarify if TDS @ 31.2% is liable to be deducted on the gratuity amount if:
1. Company-B pays the entire gratuity for the 29 years service period; or
2. Company-B pays their share of gratuity for 3 years service under the DEA; or
3. Company-A pays their share of gratuity for 26 years of service rendered with them.

The Accounts Department at Company-B is treating the gratuity component of the full & final payment [including Earned Leave (EL) encashment + bonus for the last FY 2017-18 and up to April 2018 this FY] as any other salary component while clearing the payment thereof.

Regards, Sandeep

Dear Kumarsh and Sandeep, though the matter has already been very well explained by Mr. Madhu and Mr. Manoj, please find the attached notification in case you need to show it as documentary evidence:

1. Enhancement of Tax-free Gratuity amount up to Rs. 20 Lakh. The employer can pay over and above the limit, but that will only attract TDS. Up to Rs. 20 lakh, TDS is not applicable.

2. For the purpose of calculating the Gratuity period in the case of a female employee, "Twenty Six" weeks period will be countable as Service Period.

Thanks.