Gratuity Benefits: 4 Smart Things to Know for Employed Individuals

Gratuity is a cash benefit offered by an employer to his employee for rendering service in his company.

Gratuity Act in India is applicable to all establishments, where number of employees are ten or more in any day of the preceding 12 months.

Let us understand more about the eligibility, payment option and more on Gratuity Act in India.

1) Eligibility

An individual who has completed 5 years of continuous service in an organization is eligible for gratuity benefit.

However, this is not applicable in the case where the employment is terminated due to death or any disability. The amount will be paid to the nominee or legal heir.

An employee could leave his job for various reasons, after which receiving his gratuity.

2) Calculation

Calculation depends on whether an employee is covered under the payment of Gratuity Act, 1972 or it is a voluntary step on the part of a company etc.

If an employee is covered under the Act, then he is entitled to a gratuity amount of 15 days salary or wages, multiplied by the number of years he has put in.

Then in that case your calculation would be as follows: Gratuity = Last drawn basic salary x 15/26 x No. of years of service

3) Taxation

When gratuity is received by the employee within the duration of his service then gratuity is taxable and falls under the head of "salaries".

But when gratuity is received by the employee at the time of his retirement, death or superannuation then tax exemption rules for government employees differs from private employees to government employees.

4) The gratuity amount is payable at the time of:

• On Superannuation or retirement
• On resignation
• On termination
• On death
• Disablement due to accident or disease
• On retrenchment
• On layoff
• Voluntary Retirement Scheme

4 Must know points on Gratuity Benefits

1. One can nominate a family member by filling Form "F" at the time of joining your company.
2. Even when the company is making a loss, it is bound to pay the gratuity amount.
3. Gratuity is not fully exempted from tax, one needs to consider the maximum limit as any amount exceeding Rs 10 lakh will not be tax exempt.
4. If you are planning to change your company just before 5 years, do consider again on the decision. As you may lose some huge amount which you are entitled to receive if you are in a 5th year.

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