Hello Seniors,
I am writing today to seek clarification on Gratuity, which an employee is entitled to after successfully completing 3 years in any organization. I will be joining a company in September, and they have included a huge part of my CTC as Gratuity, which will not be included in my annual remuneration and will be applicable once I complete 3 years in that company. Is this fair?
In my career, I have never come across such a wage structure. I have written back to the offer team, but they are not ready to change the offer terms as they are offering me a good grade in the organization. Please advise.
From India, Bangalore
Acknowledge(0)
Amend(0)
5I am writing today to seek clarification on Gratuity, which an employee is entitled to after successfully completing 3 years in any organization. I will be joining a company in September, and they have included a huge part of my CTC as Gratuity, which will not be included in my annual remuneration and will be applicable once I complete 3 years in that company. Is this fair?
In my career, I have never come across such a wage structure. I have written back to the offer team, but they are not ready to change the offer terms as they are offering me a good grade in the organization. Please advise.
From India, Bangalore
Acknowledge(0)Amend(0)
Hello Aarti,
I am writing today to seek clarification on Gratutity which a employee is entitled for after sucessfully completing 3 years in any organization.I will be joining a company in september and they have included a huge part of my CTC as Gratutity which which not be included in my annual renumeration and will be applicable one i complete 3 years iin that co.Is this fair
Congratulations on the new assignment!.
Would like to give a clarification that Gratuity is not applicable after 3 years…
As per the Gratuity Act as herein;
Gratuity
a) Gratuity is paid to permanent staffs who have completed 5 yrs of service.
b) Gratuity is payable on cessation of service.
c) Amount of Gratuity is paid at the rate of 15 days for every complete year of service and is computed as follows.
(RATE OF BASIC + DA) X 15 X NO. OF YEARS OF SERVICE / 26
d) While computing years of service fraction of a year consisting of six months or more is treated as a full year. Fraction of a year consisting of less than six months is ignored.
e) Maximum Gratuity payable is Rs. 3,50,000/-
Hence this is not fair but not also legally correct.
What they can do is club this as a retention bonus which would be payable on the completion of your service of 3 years.
In my carrer i have never come across such wage struture i have written back to the offer team but they are not ready to change the offer terms as they are offering me a good grade in the organization.Please advice.
Even we understand your situation, what you need to do is the following;
1. Make them aware of the Legal aspects of Gratuity as mentioned above.
2. Request them to club this amount under Retention bonus payable on your completion of 3 years of service with them.
As am against the inclusion of Gratuity under CTC and my arguments as follows which I had posted earlier in this forum;
I am not saying that Grautity cannot be part of CTC but as you are saying that your company is deducting Gratuity amount form the first salary of the employees; I am giving clarification on this:
Section 7 of the Payment of Wages Act 1936 (PWA) permits deductions which can be made from wages and does not allow statutory deduction under the Payment of Gratuity Act (PG). A register is required to be made under the PWA to furnish the details of deductions other than mentioned under the above section. Section 20 of the act attracts penalty to contravene section 7 of the act. Better read with case laws, to have more understanding the law.
The preamble of Payment of the Gratuity Act itself is clear that it was enacted to introduce a scheme for payment of gratuity for certain industrial and commercial establishments as a measure of social security. The significance of this legislation lies in the acceptance of the principle of gratuity as a compulsory retrial benefit. (ref: Jeevan Lal Ltd. v. The Appellate Authority under the Payment of Gratuity Act.
The Act itself is Payment of Gratuity and not the Deduction of Gratuity. In nowhere in the act, it states of deductions and however, the word ‘payment' has been used. No act fully describes to its executions principles and therefore, the appellate authorities and legislative courts have the jurisdiction to impinge into its interpretations.
“Gratuity” as observed by the Supreme Court in its etymological sense, means a gift, especially for services rendered or return for favours received. See AIR 1970 SC 919, Delhi Cloth & General Mills Co. Ltd. v. Its Workmen. The general principle underlying the gratuity scheme is that by their length of service, workmen entitled to claim a certain amount as a retrial benefit. See AIR 1960 SC 251, Indian Hume Pipe Co. Ltd. v. ts Workmen. Gratuity has to be considered to be an amount paid unconnected with any consideration and not resting upon it and has to be considered something given freely or without recompense. It does not have foundation on nay legal liability, but upon a bounty steaming from appreciation and graciousness. Long service carries with it expectation of an appreciation from the employer and a gracious financial assistance to tide over post retrial difficulties.
Section 4(1) incorporates the concept of gratuity being a reward for long, continuous and meritorious services. It creates right infavour of an employee and at the same time creates an obligation upon a employer. (Jeevan Lal Ltd. v. The Appellate Authority under the Payment of Gratuity Act. Therefore it is a claim arising on his superannuation, retirement, resignation, on death, and disablement due to accident or disease and not by deduction from his own salary.
Section 8 if the act prescribes about the recovery of the gratuity and section 9 about the penalty. It is a punishable offence with an imprisonment.
I hope you are aware of the amendments incorporated till date in various sections of the Gratuity Act 1972. Please contact your co's lawyer for clarity; else be ready to face consequences in case of any complaint under the act or any statute inspections.
Best wishes,
Rajat
From India, Pune
Acknowledge(0)Amend(0)
I am writing today to seek clarification on Gratutity which a employee is entitled for after sucessfully completing 3 years in any organization.I will be joining a company in september and they have included a huge part of my CTC as Gratutity which which not be included in my annual renumeration and will be applicable one i complete 3 years iin that co.Is this fair
Congratulations on the new assignment!.
Would like to give a clarification that Gratuity is not applicable after 3 years…
As per the Gratuity Act as herein;
Gratuity
a) Gratuity is paid to permanent staffs who have completed 5 yrs of service.
b) Gratuity is payable on cessation of service.
c) Amount of Gratuity is paid at the rate of 15 days for every complete year of service and is computed as follows.
(RATE OF BASIC + DA) X 15 X NO. OF YEARS OF SERVICE / 26
d) While computing years of service fraction of a year consisting of six months or more is treated as a full year. Fraction of a year consisting of less than six months is ignored.
e) Maximum Gratuity payable is Rs. 3,50,000/-
Hence this is not fair but not also legally correct.
What they can do is club this as a retention bonus which would be payable on the completion of your service of 3 years.
In my carrer i have never come across such wage struture i have written back to the offer team but they are not ready to change the offer terms as they are offering me a good grade in the organization.Please advice.
Even we understand your situation, what you need to do is the following;
1. Make them aware of the Legal aspects of Gratuity as mentioned above.
2. Request them to club this amount under Retention bonus payable on your completion of 3 years of service with them.
As am against the inclusion of Gratuity under CTC and my arguments as follows which I had posted earlier in this forum;
I am not saying that Grautity cannot be part of CTC but as you are saying that your company is deducting Gratuity amount form the first salary of the employees; I am giving clarification on this:
Section 7 of the Payment of Wages Act 1936 (PWA) permits deductions which can be made from wages and does not allow statutory deduction under the Payment of Gratuity Act (PG). A register is required to be made under the PWA to furnish the details of deductions other than mentioned under the above section. Section 20 of the act attracts penalty to contravene section 7 of the act. Better read with case laws, to have more understanding the law.
The preamble of Payment of the Gratuity Act itself is clear that it was enacted to introduce a scheme for payment of gratuity for certain industrial and commercial establishments as a measure of social security. The significance of this legislation lies in the acceptance of the principle of gratuity as a compulsory retrial benefit. (ref: Jeevan Lal Ltd. v. The Appellate Authority under the Payment of Gratuity Act.
The Act itself is Payment of Gratuity and not the Deduction of Gratuity. In nowhere in the act, it states of deductions and however, the word ‘payment' has been used. No act fully describes to its executions principles and therefore, the appellate authorities and legislative courts have the jurisdiction to impinge into its interpretations.
“Gratuity” as observed by the Supreme Court in its etymological sense, means a gift, especially for services rendered or return for favours received. See AIR 1970 SC 919, Delhi Cloth & General Mills Co. Ltd. v. Its Workmen. The general principle underlying the gratuity scheme is that by their length of service, workmen entitled to claim a certain amount as a retrial benefit. See AIR 1960 SC 251, Indian Hume Pipe Co. Ltd. v. ts Workmen. Gratuity has to be considered to be an amount paid unconnected with any consideration and not resting upon it and has to be considered something given freely or without recompense. It does not have foundation on nay legal liability, but upon a bounty steaming from appreciation and graciousness. Long service carries with it expectation of an appreciation from the employer and a gracious financial assistance to tide over post retrial difficulties.
Section 4(1) incorporates the concept of gratuity being a reward for long, continuous and meritorious services. It creates right infavour of an employee and at the same time creates an obligation upon a employer. (Jeevan Lal Ltd. v. The Appellate Authority under the Payment of Gratuity Act. Therefore it is a claim arising on his superannuation, retirement, resignation, on death, and disablement due to accident or disease and not by deduction from his own salary.
Section 8 if the act prescribes about the recovery of the gratuity and section 9 about the penalty. It is a punishable offence with an imprisonment.
I hope you are aware of the amendments incorporated till date in various sections of the Gratuity Act 1972. Please contact your co's lawyer for clarity; else be ready to face consequences in case of any complaint under the act or any statute inspections.
Best wishes,
Rajat
From India, Pune
Acknowledge(0)Amend(0)
Dear Arti,
Rajat has given a suggestion which is legally correct. However, some companies include the cost of leave in your CTC. In my view, it is not correct to show the gratuity amount in CTC. Basically, there is no law that defines the ingredients of CTC.
Thanks,
J S Malik
From India, Delhi
Acknowledge(0)Amend(0)
Rajat has given a suggestion which is legally correct. However, some companies include the cost of leave in your CTC. In my view, it is not correct to show the gratuity amount in CTC. Basically, there is no law that defines the ingredients of CTC.
Thanks,
J S Malik
From India, Delhi
Acknowledge(0)Amend(0)
Dear Friends,
In certain companies, a huge amount is offered as CTC. When the gross is stated, it becomes too small; then deductions of PF etc. make the take-home very little. The CTC includes employer's ESI, PF, Gratuity, Annual Bonus, LTA, and all the benefits. Is this the correct method? Please advise regarding the term "Cost to Company" and Gross salary + benefits in statutory.
Regards,
Guna :-D
From India, Coimbatore
Acknowledge(0)Amend(0)
In certain companies, a huge amount is offered as CTC. When the gross is stated, it becomes too small; then deductions of PF etc. make the take-home very little. The CTC includes employer's ESI, PF, Gratuity, Annual Bonus, LTA, and all the benefits. Is this the correct method? Please advise regarding the term "Cost to Company" and Gross salary + benefits in statutory.
Regards,
Guna :-D
From India, Coimbatore
Acknowledge(0)Amend(0)
Hi Rajat,
Thanks for the reply. I have raised a similar question to them as I was aware that gratuity is payable after completion of 5 years with the firm. However, they say it's part of their company policy as, since they have placed me in a higher band, my probation period is also 1 year. I have resigned from my current organization and also don't have any other offer in hand. Unfortunately, their offer team is not ready to make any changes, and even the manager who interviewed me is not willing to alter the offer terms.
From India, Bangalore
Acknowledge(0)Amend(0)
Thanks for the reply. I have raised a similar question to them as I was aware that gratuity is payable after completion of 5 years with the firm. However, they say it's part of their company policy as, since they have placed me in a higher band, my probation period is also 1 year. I have resigned from my current organization and also don't have any other offer in hand. Unfortunately, their offer team is not ready to make any changes, and even the manager who interviewed me is not willing to alter the offer terms.
From India, Bangalore
Acknowledge(0)Amend(0)
People in India are still interested in getting retirement benefits as well as income tax benefits. Some companies are using gratuity as a retention tool. Some other companies have modified the provisions of the Gratuity Act and have stated that anybody completing more than 2 years will be entitled to gratuity.
It is also important to note how gratuity is treated in income tax. Kindly have a look at this:
“Any death cum retirement gratuity received by government or local authority employees is exempt from tax. For non-government employees, the taxability depends on whether gratuity is covered under the Gratuity Act.
A) Gratuity covered under the Gratuity Act:
For gratuity covered under the Gratuity Act, the total gratuity received by an employee, covered by the Gratuity Act, from various employers in the whole of service is exempt from tax to the extent of the least of the following three amounts:
- 15 days' salary, based on the last drawn salary, for each completed year of service
- Rs. 3,50,000/-; or
- The gratuity actually received.
B) Gratuity not covered under the Gratuity Act:
For gratuity not covered under the Gratuity Act, any gratuity not covered by the Gratuity Act is exempt from tax to the extent of the least of the three amounts:
- The half month's salary for each completed year of service; or
- Rs. 3,50,000/-; or
- The gratuity actually received.”
I think this information will be of some use to you.
Thanks and Regards,
Sanjeev
From India, Mumbai
Acknowledge(0)Amend(0)
It is also important to note how gratuity is treated in income tax. Kindly have a look at this:
“Any death cum retirement gratuity received by government or local authority employees is exempt from tax. For non-government employees, the taxability depends on whether gratuity is covered under the Gratuity Act.
A) Gratuity covered under the Gratuity Act:
For gratuity covered under the Gratuity Act, the total gratuity received by an employee, covered by the Gratuity Act, from various employers in the whole of service is exempt from tax to the extent of the least of the following three amounts:
- 15 days' salary, based on the last drawn salary, for each completed year of service
- Rs. 3,50,000/-; or
- The gratuity actually received.
B) Gratuity not covered under the Gratuity Act:
For gratuity not covered under the Gratuity Act, any gratuity not covered by the Gratuity Act is exempt from tax to the extent of the least of the three amounts:
- The half month's salary for each completed year of service; or
- Rs. 3,50,000/-; or
- The gratuity actually received.”
I think this information will be of some use to you.
Thanks and Regards,
Sanjeev
From India, Mumbai
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
Gratuity-Leave calculation on CTC-Rev..xls