GRATUITY POLICY AT WORKPLACE

BY: Pooja Miglani (HR Intern)

 PAYMENT OF GRATUITY ACT, 1972

Gratuity is an important component of salary and understanding

it properly is paramount for saving tax for salaried individuals.
 What is Gratuity?

Gratuity is a sum of money paid by an employer to its employee at

the end of the period of his/her employment as a mark of recognition
for contributing to the company.

In other words, it is one of the retirement benefits offered by an

employer to an employee upon Retirement / leaving a job.

For Government employees , whole amount of gratuity is exempted

while for others exemption is as per section10(10) of Income Tax
Act,1961.
 Applicability

 Every factory, mine, oilfield, port, railways, plantation, shops,

establishments or educational institution

 having 10 or more employees on any day in the preceding

12 months

Note:

 Gratuity will remain entitled to even if the number of employees goes

below 10 after the Act becomes applicable to your employer once.

 Act does not apply to Apprentices and persons who hold civil post
under the central govt. or state govt.
 When is gratuity payable?

Only after completing five years of continuous service with the same employer,
employee will be eligible to receive the gratuity benefit.

It is payable:

 On Superannuation (or) Retirement.

 On Resignation (or) Termination

On death or Disablement due to accident or disease. (Even if service is of less

than 5 years).
 Tax Treatment of Gratuity
Gratuity is taxable when it is so received under the head Income form salary. An employee
can claim exemption maximum up to Rs. 10, 00,000.
However tax treatment varies according to various categories of employees as follows:

Government employee Non-government employee Non-government employee

covered under payment of not covered under payment
Fully exempt from tax Gratuity Act 1972 of Gratuity Act 1972
Maximum exemption from tax- Maximum exemption from tax-
Least of the following: Least of the following:

• Actual Gratuity received • Actual Gratuity received

• Rs. 10,00,000/-
• No. of completed years of
service or part there of in
excess of 6 month *
15/26* salary last drawn
• Rs.10,00,000/-
• (½* Average salary *
completed year of service
(part of the month not
considered)
 POINTS TO REMEMBER:

1 Employer has a right to forfeit gratuity in case employee is being terminated due to
misconduct or any other act of violence.
Employer is responsible to determine the gratuity and pay the same within 30 days of
2
gratuity becomes payable.

Madras high court ruling states that an employee is eligible for gratuity even if he
3
completes 240 days in the fifth year.

4 After completing one year of service, an employee is eligible to file nomination in Form F.

5 In case gratuity paid to the nominee or legal heir, continuous service of five years is not
applicable

In case gratuity is received from more than one employer during the previous year,
6
maximum exemption allowed is up to Rs.10,00,000.
 GRATUITY POLICY AT PEACOCK SOLAR
The Payment of Gratuity Act, 1972 shall apply to all employees.
 
Under the Provisions of the Gratuity Act, gratuity is payable to all on separation/
superannuation/ resignation/ after 5 years of continuous service, or death,
whichever is earlier.
 
Gratuity will be calculated @ 15 days salary for each completed year of service,
and part thereof in excess of six months.
 
Procedure:
Trust is formed and managed by Life Insurance Company
Amount paid to the trust every year.
Decision of payment of Gratuity is taken by Trustees.
Amount withdrawn from current account and amount paid to an employee.
 
Note: If any misconduct, misappropriation of funds or any kind of fraudulent
means is proved against an employee his/her Gratuity amount can be withheld.
Thank You!