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Topics to be covered
• Meaning & Purpose
• Amendments
• Benefits
• Calculation of Gratuity
• Forfeiture of Gratuity
• Difference between Form I & Form F
• Must known points on Gratuity Benefits
1. Meaning
Gratuity Act is a statutory benefit paid to the employees who have
rendered continuous service for at least five years.
Lump sum amount paid
Retirement benefit
Payment of gratuity
1.1 Applicability of Act
The Payment of Gratuity Act, 1972 is applicable to the following:
 every factory, mine, oilfield, plantation, port and railway company;
 every shop or establishment within the meaning of any law in which ten or more
persons are employed, or were employed, on any day of the preceding twelve
months;
 Once Act applies, it continues to apply even if employment strength falls below 10
NOTE : The Act extends to whole of India but it does not extend to the State of
Jammu and Kashmir so far as it relates to plantations or ports.
1.2 Eligibility for Gratuity
• Completion of 5 years of continuous service
• In case of death or disablement, the gratuity is payable, even if he has not
completed 5 years of service
• Not applicable in case where the employment is terminated
To whom Gratuity is payable..???
 Gratuity is normally payable to the employee himself,
 In the case of death of the employee,
• It shall be paid to his nominee or if nominee has not been made, to his legal heirs
• In case the nominee/ heir is minor, his share shall be deposited with the controlling
authority who shall invest the same for benefit of the minor, until he/she attains
majority
1.3 Meaning of Continuous Service
• Gratuity shall be payable to an employee on the termination of his employment
after he has rendered continuous service for not less than five years.
1.4 Purpose
• The main objective of this Act is to provide for a Scheme for the payment of
Gratuity to employees engaged in factories, mines, oil fields plantations, ports,
railway companies, shops or other establishments and for matter related there of.
2.
•Payment of Gratuity (Amendment) Bill, 2017
The gratuity ceiling for government servants got revised, from Rs. 10
Lakh to Rs. 20 Lakh
•Payment of Gratuity (Amendment) Bill, 2018
The bill ensures harmony amongst employees in the private sector and
Public Sector Undertakings/Autonomous Organizations under Government
who are not covered under CCS (Pension) Rules. These employees will be
entitled to receive higher amount of gratuity at par with their counterparts
in Government sector.
3. Benefits
• Gratuity is payable on the basis of all emoluments earned by the employee, i.e.
basic wages plus Dearness Allowances / Special Allowances.
• The quantum of gratuity is to be computed at the rate of 15 days wages (7 days
wages in case of seasonal establishments) based on rate of wages last drawn by the
employee concerned for every completed year of service or a part thereof exceeding
6 months.
• The total amount of gratuity payable shall not exceed the prescribed limit i.e. Rs.
10,00,000/- (after publication of notification).
• In case where higher benefit of gratuity is available under any gratuity scheme of
the Co. the employee will entitled to higher benefit.
4. Calculation of Gratuity
• Gratuity formula for Monthly Rated Employee
Gratuity = 15 Days’ Wage * Number of years of service
Where,
Wage = (Basic + DA) as per last drawn salary
15 Day’s wage = Last drawn monthly wage * 15/ 26
• Example of Gratuity calculation: John worked for an engineering company for 10
years and 9 months, his last drawn basic salary was 30000 and DA 15000, than
gratuity amount after his resignation would be as follows.
Ans- Last drawn salary= 30000+15000=45000
Total years of service=11 years
Gratuity= 45000×15/26x 11= Rs. 285577/-
• Gratuity formula for Piece Rated Employee
Gratuity = Last drawn wages * (15/26) *Total years of service
Where,
Last drawn Wages = Total wages received during three months immediately preceding
termination /Days actually worked
Last drawn wages shall not include overtime wages.
Total years of service includes a part of year in excess of six months
• Gratuity formula for employee of a Seasonal Establishment
Employee of seasonal establishment shall be paid gratuity at the rate of 7 days wages
for each season
NOTE : Max. Gratuity payable under the Act is Rs. 10,00,000/- (w.e.f. 24th May,
2010)
Continued….
5. Forfeiture of Gratuity
• The employee partly forfeits the gratuity payable to him if his services are
terminated for any act, wilful omission or negligence, causing any damage or loss
to, or destruction of, property belonging to the employer, to the extent of damage or
loss caused.
• The gratuity payable to an employee may be wholly or partially forfeited:
(a) if the services of such employee have been terminated for his riotous or disorderly
conduct or any other act of violence on his part, or
(b) if the services of such employee have been terminated for any act which constitutes
an offence involving moral turpitude, provided that such offence is committed by
him in the course of his employment.
6. Difference between Form ‘I’ & Form ‘F’
• Form F
 It is for Nomination
• Form I
 It is for application for Gratuity
Must known points on Gratuity Benefits
 One can nominate a family member by filing Form “F” at the time of joining your
company
 Even when the company is making los, it is bound to pay the gratuity amount
 Gratuity is not fully exempted from the tax, one needs to consider the maximum
limit as any amount exceeding Rs. 10 (now Rs. 20) lakh will not be tax exempt
 If you are planning to change your company just before 5 years, do consider again
on the decision,. As you may loose some huge amount which you are entitled to
receive if you are in the 5th Year
 Maximum limit on Gratuity shall not exceed Rs. 3,50,000 (if there award,
agreement, or agreement for higher amount of gratuity is allowed)
Gratuity Benefits Guide

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Gratuity Benefits Guide

  • 1.
  • 2. Topics to be covered • Meaning & Purpose • Amendments • Benefits • Calculation of Gratuity • Forfeiture of Gratuity • Difference between Form I & Form F • Must known points on Gratuity Benefits
  • 3. 1. Meaning Gratuity Act is a statutory benefit paid to the employees who have rendered continuous service for at least five years. Lump sum amount paid Retirement benefit Payment of gratuity
  • 4. 1.1 Applicability of Act The Payment of Gratuity Act, 1972 is applicable to the following:  every factory, mine, oilfield, plantation, port and railway company;  every shop or establishment within the meaning of any law in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;  Once Act applies, it continues to apply even if employment strength falls below 10 NOTE : The Act extends to whole of India but it does not extend to the State of Jammu and Kashmir so far as it relates to plantations or ports.
  • 5. 1.2 Eligibility for Gratuity • Completion of 5 years of continuous service • In case of death or disablement, the gratuity is payable, even if he has not completed 5 years of service • Not applicable in case where the employment is terminated To whom Gratuity is payable..???  Gratuity is normally payable to the employee himself,  In the case of death of the employee, • It shall be paid to his nominee or if nominee has not been made, to his legal heirs • In case the nominee/ heir is minor, his share shall be deposited with the controlling authority who shall invest the same for benefit of the minor, until he/she attains majority
  • 6. 1.3 Meaning of Continuous Service • Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years. 1.4 Purpose • The main objective of this Act is to provide for a Scheme for the payment of Gratuity to employees engaged in factories, mines, oil fields plantations, ports, railway companies, shops or other establishments and for matter related there of.
  • 7. 2. •Payment of Gratuity (Amendment) Bill, 2017 The gratuity ceiling for government servants got revised, from Rs. 10 Lakh to Rs. 20 Lakh •Payment of Gratuity (Amendment) Bill, 2018 The bill ensures harmony amongst employees in the private sector and Public Sector Undertakings/Autonomous Organizations under Government who are not covered under CCS (Pension) Rules. These employees will be entitled to receive higher amount of gratuity at par with their counterparts in Government sector.
  • 8. 3. Benefits • Gratuity is payable on the basis of all emoluments earned by the employee, i.e. basic wages plus Dearness Allowances / Special Allowances. • The quantum of gratuity is to be computed at the rate of 15 days wages (7 days wages in case of seasonal establishments) based on rate of wages last drawn by the employee concerned for every completed year of service or a part thereof exceeding 6 months. • The total amount of gratuity payable shall not exceed the prescribed limit i.e. Rs. 10,00,000/- (after publication of notification). • In case where higher benefit of gratuity is available under any gratuity scheme of the Co. the employee will entitled to higher benefit.
  • 9. 4. Calculation of Gratuity • Gratuity formula for Monthly Rated Employee Gratuity = 15 Days’ Wage * Number of years of service Where, Wage = (Basic + DA) as per last drawn salary 15 Day’s wage = Last drawn monthly wage * 15/ 26 • Example of Gratuity calculation: John worked for an engineering company for 10 years and 9 months, his last drawn basic salary was 30000 and DA 15000, than gratuity amount after his resignation would be as follows. Ans- Last drawn salary= 30000+15000=45000 Total years of service=11 years Gratuity= 45000×15/26x 11= Rs. 285577/-
  • 10. • Gratuity formula for Piece Rated Employee Gratuity = Last drawn wages * (15/26) *Total years of service Where, Last drawn Wages = Total wages received during three months immediately preceding termination /Days actually worked Last drawn wages shall not include overtime wages. Total years of service includes a part of year in excess of six months • Gratuity formula for employee of a Seasonal Establishment Employee of seasonal establishment shall be paid gratuity at the rate of 7 days wages for each season NOTE : Max. Gratuity payable under the Act is Rs. 10,00,000/- (w.e.f. 24th May, 2010) Continued….
  • 11. 5. Forfeiture of Gratuity • The employee partly forfeits the gratuity payable to him if his services are terminated for any act, wilful omission or negligence, causing any damage or loss to, or destruction of, property belonging to the employer, to the extent of damage or loss caused. • The gratuity payable to an employee may be wholly or partially forfeited: (a) if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or (b) if the services of such employee have been terminated for any act which constitutes an offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.
  • 12. 6. Difference between Form ‘I’ & Form ‘F’ • Form F  It is for Nomination • Form I  It is for application for Gratuity
  • 13. Must known points on Gratuity Benefits  One can nominate a family member by filing Form “F” at the time of joining your company  Even when the company is making los, it is bound to pay the gratuity amount  Gratuity is not fully exempted from the tax, one needs to consider the maximum limit as any amount exceeding Rs. 10 (now Rs. 20) lakh will not be tax exempt  If you are planning to change your company just before 5 years, do consider again on the decision,. As you may loose some huge amount which you are entitled to receive if you are in the 5th Year  Maximum limit on Gratuity shall not exceed Rs. 3,50,000 (if there award, agreement, or agreement for higher amount of gratuity is allowed)