Indian Gratuity Qualifications

Gratuities are monetary payments made to employees by their employers as a sign of appreciation for their work. Payment of gratuities is covered by the Payment of Gratuities Act 1972. A worker must be aware of the amount of gratuity he will receive and the criteria for eligibility. An employee’s gross salary includes gratuity payments. Gratuity payments are subject to some rules and regulations set by the Government of India, despite the Payment of Gratuity Act 1972 applying to all companies and industries.

Why gratuity was introduced?

After retirement, gratuity becomes more important. In order to provide employees with a comfortable retirement, gratuity is introduced. Retirement is not affected by physical disabilities, superannuation rules, or physical impairments. Employees who qualify for gratuities are paid after retirement if they meet the criteria.

Gratuities are not linked to employee evaluations. Essentially, it is a token of appreciation for years of service provided by the employee to the company.

What is the applicable gratuity?

All of the following entities are required to pay gratuities under the Payment of Gratuity Act 1972:

* Mines, factories, oil fields, ports, railways and plantations
* In accordance with the Shops and Establishments Act, all establishments and shops must be registered
* Establishments with more than ten employees
* It does not matter how many employees an establishment has if the Payment of Gratuity Act 1972 applies; the gratuity must be paid.

What you need to know about applying for gratuity qualifications in India?

Gratuities are payable to employees who have served an organization for five or more years before their employment contract ends.

To calculate gratuity, 240 working days are approximated if the employee does not work underground (e.g., in a mine). In contrast, an employee who works underground will have 190 days in a year. Underground work has health risks, which may explain this.

Note1: Employees whose services have been discontinued due to death are not eligible for the 5 year continuous service criterion.

Note 2: During the calculation of gratuity payments, earned leaves, maternity leaves, and disability leaves are considered days worked.

Guidelines for calculating gratuities:

A description of the gratuity rules can be found in Section 4 of the Payment of Gratuity Act 1972.

* When a company hires ten or more employees, gratuities must be paid.
* In order to be eligible for gratuity, employees must have served in an organization for at least five years.
* Gratuities are not just available upon retirement. The death of the employee or termination of the employment, for example.
* Gratuities are determined by the employee’s last salary and the number of years he or she has worked.
* It is possible for gratuities to be forfeited in certain circumstances. Activities that are illegal, for example
* Gratuity payments must be made to all eligible employees even if the organization declares bankruptcy.
* Both the federal and state governments exempt gratuity payments below 20 lakhs from taxation. The previous limit was 10 lakhs.
* The tax treatment of gratuities varies between employees working for organisations covered by the Payment of Gratuity Act 1972, and those who are not.
* A cumulative gratuity obtained by an employee is exempt from tax up to 20 lakhs.
* Employees’ nominees or legal heirs must be exempt from taxation if an employee dies and receives a gratuity payment.

The forfeiture of gratuities

Several situations can result in a partial or complete forfeiture of a gratuity payment to an employee:

* It is possible to forfeit the gratuity of an employee who has been terminated because of negligence, loss or damage that has resulted in the loss of the employer.
* Disruptive conduct or violent acts result in an employee’s termination.
* In the case of an employee who was terminated because he participated in illegal activities while employed.

Payment timeline for gratuities

Upon retiring from a company after five years of service, an employee is entitled to a gratuity payment. It is possible for him/her to receive the gratuity payment in the following ways:

* When he/she resigns or retires
* If he/she retires at a young age
* Physical disability or death caused by accident or disease can result in discontinuation of service.

Conclusion

A five-year service requirement is required for employees to qualify for gratuity. A death of an employee does not trigger this condition. Both the Central and State Governments exempt gratuity payments up to 20 lakhs from taxation. Gratuity payments are governed by the Payment of Gratuity Act, 1972. Upon retiring or resigning from an organization, you will receive your gratuity payments if you have served the organization for five years.