According to the Gratuity Act 1972, an employee becomes entitled to receive a gratuity when he has completed his full period of service in the company and such service includes at least one day during which he was paid on a daily basis or for each working day.
In this blog we’ll know about How gratuity payment is done, whom gratuity is applicable, what is the limit of receiving the Gratuity Payment and how to calculate gratuity.
How Is Gratuity Payment Done?
The gratuity must be given by way of cash or cheque (in lieu of cash). There should not be more than 10% gratuity payable from the employer. If the gratuity exceeds this amount, then it will be treated as income under section 2(1) of the Income Tax Act 1961.
An employee who receives a gratuity may claim tax deduction if he pays any part of the gratuity within three years of receipt. However, there are certain requirements that should be ensured before claiming the deduction. These include:
- Payment of the gratuity must have been made with due regard to the provisions of the Gratuity Act
- The person making the payment must have had reasonable grounds for believing that the recipient would suffer loss
- The recipient must have suffered loss
- The payment should have been made voluntarily and
- There must be no other source of income available to the recipient
An employee under the Gratuity Act 1972 is anyone employed in any capacity in relation to the employer’s business, regardless of whether the employment is casual or temporary. Employees engaged in manufacturing or service production fall under this category. It also includes persons whose duties involve the performance of work in connection with the management of the affairs of the employer.
Gratuity Does Not Apply to the Following People:
- A person who is not an employee
- An officer of the company
- A director of the company
- Any person who is employed in a position where he is required to make payments out of his own pocket
- A person who makes payments under the terms of a contract of employment
- A person employed by a trade union in any capacity
- A person who works in a shop or office owned by the a hospital, nursing home or similar institution
- A person employed in a school
- A person performing community service
- An individual who works on a farm or plantation
- A person doing voluntary work
- A person belonging to a religious sect or order
- A person serving as a member of parliament or a state legislature
- Agents are people who act on behalf of others
- An employee of a primary school as a teacher
- An employee of a local government
- An individual who is employed to perform a legal duty
- A person who works on a ship or aircraft
In addition , it does not apply to the following people:
- Governmental employee who performs a government function
- An employee with a contract of employment lasting less than six months
- A person employed under a contract for a term exceeding six months but not exceeding two years
- A person employed pursuant to a contract for a term of more than two years but not exceeding five years
- Public servants are appointed to public posts
- A person employed solely to provide advice or assistance to the employer
- A person employed only to perform specific functions relating to the administration of the business of the employer
- A person employed only to assist the employer in the exercise of his rights under this Act
- A person employed at will and
- A person employed in any capacity which is not specified above.
What Is the Limit Of Receiving The Gratuity Payment?
In the case of continuous service for at least five years, a gratuity of ₹12 lakhs can be paid to the employee. Gratuities are paid to employees when they retire, terminate, or die, or to their legal heirs if the employee passes away.
Does the Limit Of Receiving The Gratuity Payment Include Overtime?
Yes, if there are 2 or more hours worked beyond the normal working hours.
How Do I Calculate My Gratuity?
To calculate your total gratuity, multiply your monthly salary by 12 months and divide by 52 weeks. If you have been employed for less than 6 months, then you should add 3 months to your annual salary. For example, if you earn ₹15,000/month, you would receive ₹1,50,000 as gratuity.
Conclusion- Limit Of Receiving The Gratuity Payment
Paying gratuities in accordance with the Payment of Wages Act, 1936 is required since gratuities are considered wages. Depending on how many years of continuous service you have, gratuities are set.
Employees’ families may claim gratuities upon the death of their loved ones. However, if the deceased has left no surviving spouse or children, then the gratuity shall go to the State Government.
In case of termination of employment, the employer is liable to pay the gratuity to the employee within 30 days of termination. The employer cannot withhold gratuities from employees without their consent. However, if the employer fails to pay gratuity to an employee, he could face legal action.
Hope this blog Limit Of Receiving The Gratuity Payment was clear. If you would like more information about gratuity, please contact our team.
Read more:-
