Gratuity for the employee may be considered one of the most important financial offers made for continued service an employee would render to the organization. Gratuity is one thing an employee is aware of, and the other is the amount due to him, thus aiding him in planning an exit from that organization. A smooth transition from one job to another or full retirement at home is where the gratuity acts as a soft cushion. Some facts with regard to gratuity qualifications are stated below.
What Is Gratuity?
## Gratuity means a money sum given to an employee by his employer for working for that employer for a fairly long time. Such employees who have worked in an establishment for a minimum of 10 or more shall be granted gratuity under the Payment of Gratuity Act, 1972.
Eligibility Criteria Of Payment of Gratuity
When contemplating on gratuity payment eligibility, several facts and conditions come to light:
- Minimum Service – Must hold 5 years of continuous service under the same employer.
- Just cause for exit – Gratuity on termination of service contract either by the party or for just causes like resignation, retirement, death, or disability, but under no circumstance to be allowed on grounds of misconduct.
- Nature of Employment – Claims for breach of the employee’s rights can be made by private or government employees.
Exceptions To The Five Year Rule
- The gratuity is payable to either the nominee of the employee or to the legal heirs if death or disability occurs before 5 years’ service is rendered by the employee.
How Gratuity Is To Be Worked Out?
The calculation of gratuity is as follows:
\[ \text{Gratuity=(Last Salary drawn ×15 ×Years Worked)} ÷ 26 \] Where:
- Last Salary Drawn= Basic Salary + Dearness Allowance
- 15 – 15 days’ salary for each completed year of service
- 26 for working days in a month
Illustrative Calculation
Gratuity calculation for the last salary drawn of ₹50,000 is worked out for a period of 10 years:
\[
= (50,000 × 15 × 10) ÷ 26 = ₹2,88,461
\]
Steps on How To Claim Your Gratuity?
- Submit Gratuity Application (Form I) to the employer within a period of 30 days.
- The employer, if he or she finds the claims to be valid, shall accept and verify the claims.
- Payment of gratuity will be made to the employee within a period of **30 days** from the date of approval.
Taxability Of Gratuity
- For Government Employees: Fully exempted.
- For Employees under the Private Sector: Exemption up to ₹20 lakh under Fourth Schedule, Section 10(10) of the Income Tax Act.
Conclusion
Gratuities are indeed very crucial financial benefits meant to serve as late EL exit mechanisms for termination of employment. However, having been entitled, you should make sure of proper and timely application submission.
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