Gratuity Rules
Updated on : 2020-Dec-10 14:54:48 | Author :
Gratuity Rules: All You need to Know
Gratuity forms a part of an individual’s salary. It is one of the components that makes up the gross salary of an individual. In different words, it's a sum of cash that's paid to an worker once his employment term ends. It’s a sort of acknowledgement given to an worker for the services that he has rendered. This profit is payable under the Payment of Gratuity Act, 1972. Although it's really payable upon retirement, it is paid to the worker beforehand, depending on the terms and conditions. The person ought to have completed a minimum of 5 years of service in a corporation. It may be paid before the five-year mark in case of the death of the employee or some illness or disability.
How does Gratuity Payment Work?
In some cases, the employer pays his staff from their own pockets, whereas on the other hand, they holdup with insurance suppliers for group gratuity plans. In addition, it's possible for an worker to contribute to his gratuity amount. The gratuity that the insurance company pays depends on the clauses connected to the insurance scheme.
Payment of Gratuity Act, 1972:
This act was passed within the year 1972 to cover staff that were engaged in factories, mines, oil fields, plantations, ports, firms and institutions with over 10 staff. As per the act, the gratuity amount due is to be paid totally by the employer and doesn't need contribution by the worker.
Gratuity Rules and Regulations
The Payment of Gratuity Act, 1972, states that an worker is eligible to induce gratuity solely when he or she has worked with a company for a minimum of 5 years. The worker stands to receive the gratuity amount on his or her superannuation, or at the time of retirement or resignation. However, it must be noted that there's an exception wherever the condition of operating for 5 straight years with a firm doesn't apply. In the event that AN employee becomes disabled or passes away, the law mandates that the employer pay the gratuity to the employee or his or her nominee, in spite of the number of years of continuous service. The law conjointly says that if the nominee may be a minor, then the assistant labour commissioner can invest the total in his or her name into a term deposit with a nationalised bank for the minor's profit till the time that he or she becomes a major. There are rules that need to be adhered to during the time of payment. The rules state that once an worker is eligible to induce gratuity, the individual has to apply within a matter of thirty days from the date it becomes payable. Should the date of superannuation or retirement be known, the appliance may be created before thirty days. An employer, however, isn't allowed to show down an application from the worker after the ending of thirty days if the delay is because of a legitimate cause. The foundations also suggest that no claim for gratuity shall be considered invalid, just because the individual failed to file his or her application throughout the required period.
Eligibility Criteria for Receiving Gratuity
Gratuity can be received by the employee on the following criteria:
- The employee has to be eligible for superannuation
- The employee should have retired
- The employee must have resigned after completing 5 years with the same employer
- The employee dies or suffers with a disability caused due to an illness or accident
Calculation of Gratuity
There are a many components that go into making the gratuity amount. This amount also depends on the time span one has served in the company as well as the salary last drawn.
Let’s take:
N = the number of years served in the company B = the basic last drawn salary + DA Then, Gratuity = N x B x 15/26
An employee who has worked with an organization for 15 years and has INR 30,000 as his last drawn basic + DA amount, then his Gratuity = 1530,00015/26 = INR 2,59,615.38
Points to consider:
- As gratuity is a sort of tip, the employer could choose to pay a higher amount. It should not exceed INR 10 lakhs.
- An amount above the cap of INR 10 lakhs is called ex-gratia. It is not imposed by the law and is a voluntary contribution.
- A time span of more than 6 months, of the last year of employment, is rounded off to the next number, while the time below 6 months is not; i.e. if an worker has worked for seven years eight months in a company, he's susceptible to eight years gratuity, whereas if he has worked for seven years four months, he's liable for seven years gratuity only.
Gratuity calculator:
The gratuity calculator tool in the given below link can be used for calculating your gratuity.
Source: http://www.incometaxindia.gov.in/Pages/tools/Gratuity-calculator.aspx
Gratuity Forms
The various forms pertaining to gratuity are:
- Form A:Notice of Opening
- Form B:Notice of Change
- Form C:Notice of Closure
- Form D:Notice for excluding husband from family
- Form E:Notice of withdrawal of notice for excluding husband from family
- Form F:Nomination
- Form G:Fresh Nomination
- Form H:Modification or Nomination
- Form I:Application of gratuity by an employee
- Form J:Application for gratuity by a nominee
- Form K:Application for gratuity by a legal heir
- Form L:Notice for payment of gratuity
- Form M:Notice rejecting claim for payment of gratuity
- Form N:Application for direction
- Form O:Notice for appearance before the controlling authority
- Form P:Summons
- Form Q:Particulars of application under section 7
- Form R:Notice for payment of Gratuity
- Form S:Notice for Payment of Gratuity as determined by Appellate Authority
- Form T:Application for recovery of gratuity
- Form U:Abstract of the Act and Rules
Additional Resources:
