The article describes gratuity. The conditions wherein employees should demand their gratuity are explained, including calculation formulas for employees both covered and not under the Gratuity Act.
Calculate Retirement and Death Gratuity calculation: Let’s start with the definition of Retirement and Death Gratuity. If a retired government servant dies within 5 years from the date of retirement and without receiving an amount equal to / 12 times of his emoluments (that is his) gratuity or pension, then a residuary gratuity equal to the deficiency is granted to his family, according to Pension Rules 2023.
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-
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Retirement and Death Gratuity Calculator: In case of death or disablement there is no minimum eligibility period. The gratuity amount depends upon the tenure of service and last drawn salary.
What is Death Gratuity?
Death gratuity is a one-time lump sum benefit provided to the nominee or family member of a government servant who passes away while in service. Unlike retirement gratuity, there is no minimum length of service required for the deceased employee to be eligible for death gratuity.
Significance of Retirement and Death Gratuity
Retirement and Death Gratuity serves as financial support for the family or nominee of a government servant who dies during their service. It is a gesture of acknowledgment and assistance during a challenging time, providing a lump sum amount based on the length of the deceased employee’s qualifying service.
Formula for Calculating Retirement and Death Gratuity
The calculation of Retirement and Death Gratuity depends on the length of the qualifying service. The rates are as follows:
- Less than one year: 2 times of basic pay
- One year or more but less than 5 years: 6 times of basic pay
- 5 years or more but less than 11 years: 12 times of basic pay
- 11 years or more but less than 20 years: 20 times of basic pay
- 20 years or more: Half of emoluments for every completed 6 monthly period of qualifying service, subject to a maximum of 33 times of emoluments.
Retirement and Death Gratuity Calculation
Companies are expected to give gratuity dues to employees in a fair and just manner, hence, it is only safe and cognizant to know what one is entitled to for the virtue of their service so that no clerical or administrative error leads them to get a lesser amount.
The maximum amount of death gratuity amount is 20 Lakhs for ones covered under the act and tax exempted, and for the employees not covered under the act, have a tax exempted max amount of 10 Lakhs.
Gratuity = Average salary (basic + DA) * ½ * Number of service years
In the case of death of the employee, gratuity payable to him shall be paid to his nominee
If no nomination has been made, to the heirs, or if any such nominees or heirs is a minor, then the share of the said minor, shall be deposited with the controlling authority who will look into investing the gratuity for the benefit of the minor in a bank or other financial institution, as per their discretion, until the child becomes an adult and can manage the finances himself.
Factors Affecting Death Gratuity Amount
The key factor influencing the death gratuity amount is the length of the deceased employee’s qualifying service. The longer the service, the higher the multiplier applied to the basic pay, resulting in a larger gratuity amount.
Eligibility for Death Gratuity
There is no stipulated minimum length of service required for eligibility. Any government servant who dies while in service is entitled to death gratuity, making it a crucial financial support mechanism for the nominee or family.
Retirement and Death Gratuity Payment Process
Upon the death of a government servant, the designated nominee or family member can claim Retirement and Death Gratuity. The process involves submitting the necessary documents to the relevant authorities, initiating the calculation based on the qualifying service and disbursing the lump sum amount.
Documentation Required for Claiming Death Gratuity
To claim death gratuity, the nominee or family member typically needs to provide documents such as the death certificate, employment details of the deceased and any other documentation specified by the government authorities.
Taxation of Retirement and Death Gratuity Calculation
The amount received as death gratuity is exempt from income tax, providing additional financial relief to the recipient.
Note – Maximum amount of Death Gratuity admissible is Rs. 20 lakhs w.e.f. 1.1.2016 .
Employees Covered under the Payment of Gratuity Act
The gratuity amount depends upon the tenure of service and last drawn salary. It is calculated according to this formula: Last drawn salary (basic salary plus dearness allowance) * number of completed years of service * 15/26
Gratuity (G) = n*b*15/26
Where n = Tenure of service completed in the company
b = Last drawn basic salary + dearness allowance
The time period of service is rounded-off for gratuity calculation. If the last few months in the last year of employment are more than 6 months, then it will be rounded to the next number, and if it is up to 5 months, the previous number in counting the years of service is taken into consideration.
Employees Not Covered under the Payment of Gratuity Act
Employees associated with organizations not covered under the Act are also eligible for gratuity. There is no restricting law that stops an employer from paying gratuity to its employees.
Gratuity (G) = n*b*15/30
Death Gratuity Conditions
The above death gratuity rates are also applicable in the case of the death of a Government servant by suicide.
If a government retired government servant dies within 5 years from the date of retirement and without receiving an amount equal to or 12 times of his emoluments are gratuity or pension, then a residuary gratuity equal to the deficiency may be granted to his family, according to Pension Rules 2021.
Dearness Allowance
Dearness Allowance is the cost-of-living adjustment allowance that the government pays to the employees of the public sector as well as its pensioners. According to the Pension Rules 2021, dearness allowance admissible on the date of retirement or death shall also be treated as emoluments for the purpose of calculation of gratuity.
Entitlement to Gratuity – How Can It Be Availed and What Are the Requirements to Be Met by the Beneficiary?
- As per the Gratuity Act, the gratuity is payable up to the date of death irrespective of whether he completed five years or not.
- Employees are covered by any group gratuity insurance scheme; a case may arise for payment of gratuity till retirement depending upon the terms of insurance cover.
FAQ’s on Retirement and Death Gratuity
What is the rule of death gratuity?
The rule of death gratuity is a provision that offers a one-time lump sum benefit to the nominee or family member of a government servant who dies while in service. The amount is determined based on the length of the deceased employee's qualifying service.
What is the gratuity if a person dies?
The gratuity payable if a person dies is known as death gratuity. The amount depends on the length of the deceased individual's qualifying service, with specific rates applied to the basic pay.
How do I claim death gratuity?
To claim death gratuity, the nominee or family member needs to submit the necessary documents, including the death certificate and employment details of the deceased, to the relevant government authorities. The gratuity amount is then calculated based on the qualifying service.
Does pension stop immediately after death?
The continuation of pension after death depends on the pension scheme and rules. In many cases, there may be provisions for a family pension, ensuring financial support to the family or nominee of the deceased pensioner.
What rate of death gratuity is payable for 14 years of continuous service?
The rate of death gratuity payable for 14 years of continuous service can be determined based on the specific rates outlined above. The applicable multiplier is chosen based on the length of qualifying service to calculate the lump sum amount.
Conclusion
The huge lump sum gratuity amount one receives can be invested in the following saving schemes or investment plans.
- Senior Citizens Saving Schemes are safe retirement investment plans.
- For decades fixed deposits have been the best savings option.
- Debt mutual funds invest across various securities like money market instruments, corporate bonds, government bonds, and other government securities.
Bereavement can cause financial difficulties. Terminal benefits are made available to the family of a deceased government employee. For availing of Death Gratuity, the following data would need to be produced:
- Death Certificate of Government Employee,
- Bank account details of the nominee(s),
- PAN number of Claimant (Photocopy),
- A separate claim for each nominee.
