Government and Private Employees qualify for Gratuity payment on completing 5 years of continuous services. Eligible candidates get 15 days of their last drawn basic salary plus the dearness allowance for each year of service. If a Contractor has employed you, it becomes the responsibility of the contractor to pay the Gratuity to their eligible employees. The Payment of Gratuity Act 1972 governs the payment of Gratuity, and the highest ceiling in this regard has been capped at 20 Lakhs. Government employees are exempted from paying income tax on Gratuity, while Private Employees qualify for a rebate on the least value between the highest ceiling, total Gratuity earned, and the actual Gratuity received.

Gratuity is a payment to the employee from the employer as a reward for their continuous services. An employee qualifies to receive the Gratuity from the employer on completing 5 years of continuous services with the organization. The payment of Gratuity Act 1972 governs gratuity payment rules. The amount of the Gratuity strictly depends on the last drawn basic and dearness allowances and the span of employment with the employer. You can always refer to the online Gratuity Calculator and input your salary and employment period to get the figure instantly. 

If an employee gets disabled due to illness or accident, they will qualify to receive the gratuity payment even before competing for 5 years of service. The maximum value of receivable Gratuity cannot exceed Twenty Lakhs. 

How to calculate your Gratuity? 

With the online Gratuity Calculator, Gratuity calculation is easy and simple. The figure arrives by multiplying your last drawn basic salary plus the dearness allowance with 15/26. It implies that for every 5 years you complete, you will be eligible for 15 days of your basic salary and dearness allowance for each year as the GratuityAs 20 Lakh is the highest ceiling for the Gratuity payment, if you receive a higher amount, it shall qualify as exgratia. 

After completing 5 years of continuous services with your employer, if you have worked for more than 6 months in a year, the payable Gratuity will get the service tenure rounded to the next whole number. 

In case the employer is not covered under the Gratuity Act, the payable Gratuity is computed by multiplying the basic salary plus the dearness allowance for fifteen days with the service length; consequently, the figure so arrived should be divided by 30 to get the actual value of Gratuity payable to the employee. Other terms and conditions stay the same as discussed above. 

Gratuity payment as per the Contract Labor Act

In case you have been employed by a contractor and deployed on the principal employer’s premises, it is the liability of the contractor to pay the Gratuity. The terms and conditions and the Gratuity rate stay the same as per The Payment of Gratuity Act 1972.

How long it takes after the application to receive the Gratuity? 

Eligible employees should raise the claim for Gratuity within 30 days from the date they become eligible to receive such payment. However, the claim will not get null and void if you raise it at a later stage. 

Once the employer receives the application, you should get the acknowledgment of such claims within the next 15 days. Eligible applicants must receive the Gratuity within 30 days from the date of raising the claim. 

Taxation on Gratuity 

If you have served any enterprise with the State or the Central Government, you will be exempted from paying income tax on Gratuity. For private employees, the exemption shall be on the least figure of the highest gratuity figure, the eligible Gratuity, and the actual Gratuity received. The lowest figure shall qualify for the tax rebate, and you must pay income taxes on prevailing rates on the resultant figure. 

It would be best if you considered the Gratuity as one of the best short-term investments. It is why even if your employer turns bankrupt, they will still have to pay the Gratuity to their eligible employees. For this reason, employers avail the Group Superannuation schemes from top Insurance companies to ensure that they can make timely gratuity payments, even if some adverse consequences appear on their part.

Once you receive the Gratuity, you should ideally invest it in suitable schemes that will keep fetching your recurring income without exhausting the capital corpus. For example, after retirement, you may put the fund in a fixed deposit scheme and avail of cumulative or non-cumulative returns. Should you be in exigent cash needs after making the deposit, you may approach Bajaj Finserv for easy loans on pledging your Fixed Deposit certificate.