Gratuity Rules: If you are a salaried employee, this news could be significant for you. If you have worked for a company or organisation for a substantial number of years, you become eligible for gratuity benefits upon leaving the job or retiring. This lump-sum payment recognises an employee’s long-term service. Let us understand this in detail.
When is gratuity received?
Generally, an employee becomes eligible for gratuity benefits after completing at least five years of continuous service. You can receive this amount upon retirement, resignation, or termination of employment. In many cases, service exceeding four years and six months is treated as five years of service; however, the actual calculation depends on the terms of service and applicable rules.
What happens in the event of death?
The condition of completing five years of service does not apply if an employee dies or becomes disabled. In such cases, the employee’s nominee or an eligible family member can claim the gratuity amount.
How long does it take to receive the gratuity payment?
Typically, the employer should pay the gratuity to the eligible employee within 30 days of the cessation of service. If there is a delay, applicable rules require interest to be paid.
How much gratuity is received?
The gratuity amount depends on your last drawn salary and your tenure with the company. It is usually calculated based on the basic salary and Dearness Allowance (DA). The calculation formula is: Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26. For instance, if an employee’s last drawn salary is ₹30,000 and they have worked for 10 years, the calculation would be: ₹30,000 × 15 × 10 ÷ 26 = approximately ₹1,73,077. The estimated amount could be around ₹1.73 lakh.
What is the limit for gratuity?
Under the rules, the maximum gratuity limit for eligible employees is ₹20 lakh. However, tax implications and the actual payout depend on the specific rules that apply to the employee. Gratuity rules also vary based on the employee’s position and the organisation.