Know your benefits under The Payment of Gratuity Act, 1972

General

What is Gratuity payment:

Gratuity is a monetary benefit extended by the employer to the employee for rendering services continuously for five years or more. It is usually given at the time of retirement or resignation (after providing service for five years) and termination due to death or disability.  Payment of gratuity is governed by The Payment of Gratuity Act, 1972.

Payment of Gratuity:

Gratuity shall be payable to an employee on the termination of his/her employment after s/he has rendered continuous service for not less than five years. This is paid under the following circumstances:

  1. On the employee attaining superannuation,
  2. Upon the employee’s retirement or resignation,
  3. On the death or disablement due to accident or disease

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

Who will receive gratuity amount:

The employee will receive gratuity upon retirement or resignation.

In case of death of the employee,  gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is minor, the share of such minor, shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority

Calculation:

For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of wages last drawn by the employee concerned.

In the case of a monthly rated employee, the fifteen days’ wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen.

Payment limit:  The amount of gratuity payable to an employee shall not exceed ten lakh rupees. This is being amended to Rs.20 lakh. Amount received upto this limit will be exempted from IT.

Can one get gratuity in excess of the limit set by the Act? Yes. This Act does not affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer. Any amount in excess of the limit will attract tax.

Mode of payment:  As per the Act, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub- section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer.

Nomination:   Each employee, who has completed one year of service, shall make nomination to receive gratuity amount in case of his / her death.  The employee may nominate more than one person and, in her/his nomination, employee may distribute the amount of gratuity payable under this Act amongst more than one nominee. If an employee has a family at the time of making a nomination, the nomination shall be made in favour of one or more members of his/her family, and any nomination made by such employee in favour of a person who is not a member of his/her family, shall be void.

If at the time of making a nomination the employee has no family, the nomination may be made in favour of any person or persons but if the employee subsequently acquires a family, such nomination shall forthwith become invalid and the employee shall make, within such time as may be prescribed, a fresh nomination in favour of one or more members of his/her family.

A nomination may, subject to the provisions of sub-sections (3) and (4) of Act, be modified by an employee at any time, after giving to his employer a written.

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