How To Avail Gratuity Benefits?

Gratuity is a financial benefit provided to employees by employers as a token of appreciation for long and dedicated service. According to the Payment of Gratuity Act, 1972, employees in India are entitled to gratuity if they have worked for a minimum of five continuous years in an organization. Gratuity can be availed upon retirement, resignation, or termination under specific conditions.

How To Avail Gratuity Benefits:

Eligibility Criteria:

Minimum Service Requirement: To avail gratuity benefits, an employee must have completed at least 5 years of continuous service with the same employer. This condition is relaxed in cases of death or disability, where gratuity can be claimed even if the employee has not completed five years.

Eligible Employment: Gratuity is applicable for employees working in establishments with more than 10 employees, as mandated under the Payment of Gratuity Act.

Situations When Gratuity Can Be Availed:

• Retirement: When an employee reaches the retirement age set by the employer or upon voluntary retirement.
• Resignation: If an employee voluntarily resigns after serving for 5 continuous years.
• Termination: If an employee is terminated (except for reasons like misconduct).
• Death or Disability: In case of the employee’s death or if they are incapacitated due to an accident or illness, their legal heirs or nominee can claim gratuity.

Steps to Avail Gratuity:

Step 1: Ensure Eligibility:

Confirm that you have completed at least 5 years of service in the organization or have been terminated due to reasons beyond your control (such as illness or death).

Step 2: Submit a Formal Request:

Write a formal application for the release of your gratuity amount. This application should be submitted to the Human Resources (HR) or the accounts department of your organization.

Step 3: Provide Relevant Documents:

Submit the necessary documents, such as your ID proof, last drawn salary details, service certificate, and bank account details (for direct deposit of gratuity payment).

Step 4: Gratuity Calculation:

The employer or the concerned department will calculate your gratuity based on your last drawn salary and length of service. The formula used is:

Gratuity = Last drawn salary × Number of years of service / 26

The last drawn salary includes basic pay and dearness allowance (DA), and 26 is used as the number of working days in a month.

Step 5: Verification and Payment:

Once the application is submitted, the employer will verify the details, including the number of years worked, and process the payment. After approval, the gratuity amount will be credited to your bank account or given through a cheque.

Taxability of Gratuity:

Tax Exemption:

Gratuity is exempt from tax under Section 10(10) of the Income Tax Act, up to a certain limit. The exemption limit is:

• For government employees: The entire gratuity amount is tax-free.
• For non-government employees: The exemption is calculated based on the least of the following:
  • ₹20 lakh (maximum limit set by the government)
  • Actual gratuity received
  • 15 days’ salary for every completed year of service

Gratuity Payment Timeline:

According to the Payment of Gratuity Act, the employer is required to pay the gratuity within 30 days of the employee’s exit from the company (whether by retirement, resignation, or termination). If the employer fails to pay within this period, they may be liable to pay interest on the amount due.

In Case of Dispute:

If the employer delays or refuses to pay gratuity, the employee can approach the Labour Commissioner or file a case in the Gratuity Tribunal. Legal action can be taken to ensure the employee’s right to gratuity is fulfilled.

Example:

Let’s say an employee worked for 10 years with a company. Their last drawn salary (basic + DA) was ₹50,000. The employee resigns voluntarily after 10 years of service.

Using the formula:

Gratuity = ₹50,000 × 10 / 26 = ₹1,92,307.69

The employee will be eligible to receive ₹1,92,307 as gratuity. This amount may be subject to tax, depending on their eligibility for exemptions under the Income Tax Act.