GRATUITY

Introduction

• Paid for faithful continuous service in the organization

• Payable on completing 5 years of continuous service with the organization• Includes probation period

• The above rule is waived of in the eventuality of • Death• Permanent disablement

Applicability

• Applicable to those organizations where employee strength is more than 10

Family

• Himself/ Herself• Spouse• Children (married or unmarried)• Dependent parents• Dependent in-laws• Widow & children of predeceased son• Adopted children

• Superannuation• Attainment of age for vacating employment

• Retirement• Termination of employment other than

superannuation

• Wages• Earned while on duty or on leave.• Includes DA• Does not include bonus, HRA, overtime,

commission etc.

Definitions

Payment of Gratuity

• Gratuity can be paid to an employee when• He is superannuated• Resigned/ retired after 5 years of continuous

service• Permanent disablement• Death

• If a person has completed 240 days in a year on his/ her fifth year of service, he/ she is eligible for gratuity

Calculation

• The formula for calculating gratuity is as follows –

[(Salary*15)/26]*service period

Where, • Salary = Basic + DA

Calculation of gratuity in CTC

• 5% of basic salary• In some cases it is actually 4.81%

which is rounded up to the nearest integer

Taxability • Not taxable up to the ceiling of 3.5

lakhs.• Any amount above the same will be

taxable.• The ceiling is applicable only once

during the entire service periode.g.: If the person changes his job more

than once, then he will avail the benefit of tax savings upto 3.5 lakh only once.

Withdrawal of gratuity

• Non transferable• The LIC draws a cheque in the

favor of the organization/ Gratuity Trust

• In turn draws cheque in favor of the employee

Forms to be filledFORM DESCRIPTION SCHEDULE SUBMITTING

AUTHORITY

Form A

Notice of opening

30 days of Act becoming applicable

Concerned authority of the area

Form B

Notice of change 30 days of change Concerned authority of the area

Form C

Notice of closure 60 days before closure

Concerned authority of the area

Form D

Notice of excluding

husband from family

To be submitted to the employer in triplicate. The employer to submit a copy of the same to the concerned authority of the area.

Form E

Withdrawal of the above notice

To be submitted to the employer in triplicate. The employer to submit a copy of the same to the concerned authority of the area.

Forms to be filledFORM DESCRIPTION SCHEDULE SUBMITTING

AUTHORITY

Form F Nomination To be submitted to the employer in duplicate. The employer to verify & attest the same and return a copy to the employee

Form G

Fresh Nominations

To be submitted by the employee within 90 days of acquiring a family

Form H

Modification of nominee

To be submitted to the employer in cases where the nominee predeceases the employee

Form I Application for gratuity

To be submitted by the employee within 30 days of gratuity being payable.

Form J Application of gratuity by nominee

To be submitted by the nominee to the employer within 30 days of gratuity being payable to him. Application in plain paper is also accepted.

Forms to be filledFORM DESCRIPTION SCHEDULE SUBMITTING

AUTHORITY

Form K Application of gratuity by legal

heir

To be submitted to employer within a year of gratuity being payable

Form L Notice for payment of

gratuity

On verification of claims, the employer issues a notice to the employee/ nominee/ legal heir about the amount of gratuity payable within 15 days of the receipt of notice. The payment should be made within 30 days of the receipt of application.

Form M Notice rejecting payment of

gratuity

On verification, if the employer finds the claim inadmissible, the employer may issue a notice to the employee/ nominee/ heir specifying the reasons for rejecting the claims.

Form N Application for direction

In the above case, if the employer fails to give reasons then the employee/ nominee/ heir can apply within 90 days of submission of Form L to the concerned authority of the area

Forms to be filledFORM DESCRIPTION SCHEDULE SUBMITTING

AUTHORITY

Form O

Notice for appearance before the controlling authority

On receipt of Form N, the concerned authority may call the applicant and the employer to appear before him on a specified date, time & place.

Form R

Notice for payment of gratuity

On verifying the claims, the controlling authority issues a notice to the employer to make the payment to the employee within 30 days of the issue of the notice.

Form U

Display of abstract

The employer will prepare an abstract of the Act and display it at a prominent place where all the employees can see the same.