Gratuity in case of employee death is payable regardless of tenure, calculated based on salary and benefits, and paid to nominees or legal heirs under the Gratuity Act and company policy.
In the unfortunate event of an employee’s death, gratuity is payable to the nominee or legal heirs, regardless of the length of service. The gratuity amount is calculated based on the last drawn salary and may include the value of any additional benefits like accommodation or conveyance. Taxation and exemptions apply as per the Income Tax Act and company policy.
What Is Gratuity?
Gratuity is a lump-sum benefit paid by an employer to an employee as a token of appreciation for services rendered. In India, under Section 135(3) of the Income Tax Act, 1961, it is defined as compensation payable on death or retirement. The amount is typically based on the employee’s length of service and last drawn salary. It can be paid in cash or kind (e.g., accommodation, transport).
How Is Gratuity Calculated in Case of Death?
If an employee passes away, the gratuity amount is determined as follows:
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With Perks: If the deceased received additional benefits like free accommodation or conveyance, their monetary value is added to the salary to compute the gratuity.
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Without Perks: If no such benefits were provided, gratuity is calculated solely on the monthly salary.
Examples:
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Example 1:
Employee tenure: 20 years
Salary: ₹15,000/month
Accommodation: ₹10,000
Conveyance: ₹5,000
Total Gratuity = ₹50,000
Tax (30%) = ₹15,000 -
Example 2:
Employee tenure: 10 years
Salary: ₹12,500/month
Accommodation: ₹2,000
Conveyance: ₹1,000
Total Gratuity = ₹30,000
Tax (30%) = ₹9,000
Gratuity in Case of Death Before 5 Years of Service
Normally, gratuity is payable after five years of continuous service. However, in the case of death or disablement, this condition is waived. Here’s how it works:
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Nominee/Legal Heirs: Gratuity is paid to the nominee. If no nominee exists, it goes to the legal heirs.
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Work-Related Death: If death occurs due to a job-related accident or illness, gratuity is still payable.
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Company Discretion: Some employers may offer gratuity voluntarily as part of their internal policies.
Conditions for Claiming Gratuity
To be eligible for gratuity benefits, these conditions must be met:
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The employee must have served in the same capacity for the last two years preceding death.
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The claim must be made within six months of the financial year-end in which the death occurred.
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The employee must not have retired before the date of death.
Conclusion
Gratuity serves as a financial support to the family of the deceased employee. While statutory provisions ensure this benefit is extended even in premature death, understanding the terms under the Payment of Gratuity Act, employment contract, and company policy is essential. Legal consultation is recommended for specific cases.
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FAQs
1. How Much Does it Cost?
Generally, gratuities are paid upon separation from employment or retirement. Gratuities may be paid either in cash or in kind (such as a gift certificate).
2. What If I Don't Get Any Gratuity?
If you do not receive any gratuity, then you can claim it within 3 years after your last day of work. If you fail to file the claim within this period, then you will lose all rights to the gratuity. You should also note that there is no provision for gratuity if you die during service.
3. Can I Claim Gratuity Even if I Am Not Eligible for Pension?
Yes, you can claim gratuity even if you are not eligible for a pension. However, the amount claimed cannot exceed the basic pay of the deceased. For example, if the deceased was drawing Rs. 10,000/- per month and he died on 1st July 2000, then the maximum amount which could be claimed would be Rs. 10,000 only.
4. Does Gratuity Include Medical Insurance?
Yes, gratuity includes medical insurance. In fact, gratuity is considered as part of your salary package. Therefore, you are entitled to medical benefits under the employer's health scheme.
5. Is Gratuity Tax-Free?
No, gratuity is taxable. It is subject to income tax and surcharge.
6. Who Pays the Gratuity?
The employer has to bear the burden of paying gratuity. However, the employee can claim reimbursement of gratuity expenses from the employer.
7. How Can I Calculate My Gratuity?
You can use the following formula: Gratuity Basic Pay x Number of Years Served / Total Earnings Amount of Gratuity For example, let us say that the deceased had been working with the company for 30 years and he earned ₹ 50,000/- per year. His total earnings were ₹ 150,000/-. Therefore, the amount of gratuity payable would be ₹ 25,000/-. Note: This calculation assumes that the deceased did not have any other source of income.
8. Do I Need to Submit Proof of Payment of Gratuity?
No, you do not need to submit proof. However, you must keep a record of the amount of gratuity received.
9. Are Gratuities Transferable?
No, gratuities are non-transferable.
How is gratuity calculated in a death case in India?
Gratuity in a death case in India is calculated based on the rules and regulations outlined by the government. The amount of gratuity payable depends on the rank, grade, length of service and other relevant factors. The formula for calculating gratuity under the Payment of Gratuity Act of 1972, is: Gratuity = n * b * 15 / 26 Note: n denotes the tenure of service completed in the company, and b denotes the last drawn basic salary plus dearness allowance.
What is the rule of death under gratuity?
The rule of death under gratuity states that the gratuity is payable to the nominee or the employee on disability, irrespective of whether the employee has completed five years of service or not.
Who is not eligible to get the gratuity?
Employees who are not eligible for gratuity include those who have not completed five years of service, have resigned or have been dismissed due to misconduct.
Does loss of pay affect gratuity of the employee?
Loss of pay does not affect the gratuity of the employee. The gratuity amount is calculated based on the last drawn salary and the number of years served, as mentioned in the formula above.
What are the new rules of gratuity in 2023?
In the 2023 Budget, the bar amount of gratuity was increased to ₹20,00,000 from the previous limit of ₹10,00,000.
What is the rule of gratuity for private employees?
For private employees, the gratuity rules may vary depending on the company's policies and the nature of the employment contract. However, the Gratuity Act of 1972, does not cover all private employees.
What is the mandatory period for gratuity?
The mandatory period for gratuity is five years of continuous service with the same employer.
