Legal Guide

What is gratuity eligibility in India?

by Bhavya Choudhary · 3 min read

Gratuity eligibility

Introduction 

Employers pay their employees a sum of money to show gratitude for the services they have received for years. This is the gratuity that is received by the employees after their hard work in a company for the long term, and there are certain criteria for gratuity eligibility in India.

The gratuity comes under the Gratuity Act of 1972, where it is obligatory to pay this amount to employees who have been working for 5 years and more. It is a lump sum paid for service acknowledgment and appreciation.

The subject of calculation of gratuity in these cases is the years of service of the employees and their last drawn salary.

What is gratuity eligibility?

  • The gratuity is paid to show appreciation and gratitude to the employees providing their long-term service to respective association companies.
  • They have to follow the rules and regulations of Indian law during the calculation of gratuity and have certain regulations for gratuity eligibility.
  • It happens a lot of times that the employer has to pay a lump sum from their saved money.
  • They can procure gratuity plans from insurance companies to avoid scenarios where the payments are still due.
  • The person working for any company for five or more years is under gratuity eligibility criteria, given that he/she did not obtain any service intervals.
  • The employee can opt for retirement or any other reason for resignation on some particular grounds as they still have the right as per the gratuity eligibility principles.

Is it obligatory?

  • The organization is obligated to pay its employees gratitude for their hard work if the employee has gratuity eligibility. It acts as a reward to the employee for their service and commitment to the company. 
  • Along with the salary amount, the gratuity can be beneficial from service resignation or retirement.
  • Retirement can either be forced or willful, which is either chosen by the employer or the employee respectively.
  • The organization/company is obligated to pay a gratitude amount to their loyal employees who worked towards the growth and betterment of the organization with their dedication and commitment.
  • An employee should be aware of every nitty-gritty detail of the gratuity eligibility guideline to claim their rights lawfully.

Mandatory requirements for Gratuity in India

There are certain rules and regulations concerning gratuity eligibility, and they should be acknowledged by everyone and also mentioned in employment contracts while working with any organization. These are as follows:

  • The gratuity payment is mandatory in India under the Gratuity Act 1972. It must be distributed from the employer to the employees accordingly.
  • The employee’s gratuity eligibility is calculated by using the last salary drawn by them and their years of service provided to the company. The Dearness Allowance is also referred to during the determination of gratuity eligibility.
  • The maximum amount that can be used for gratitude by an employer is ten lakhs. If by any chance, the amount exceeds, then the sum is considered as Ex- gratia/bonus.
  • The bonus is not mandatory. It is a voluntary transfer and not any legal obligation to be paid.
  • The gratuity eligibility of an employee is accepted when the employee provides their service to a company for five years or more than that.
  • The employee can also choose to retire to fall under gratuity eligibility criteria. It is optional.
  • The gratuity eligibility guideline states that the employee must discontinue their services after five years or more to get the reward amount.
  • In the cases where an employee passes away before claiming or acquiring the gratitude lump sum, the legal heir or the widow/nominee will receive the claim under legal rights.
  • There are cases where special circumstances take place, and considerations are made to the employees. In case of an accident or disability due to any incident can make them eligible to claim the gratuity beforehand.
  • The employee can be disregarded from the gratuity eligibility criteria in cases where the company has proof of their incompetence or offensive/unruly behavior.
  • The gratitude eligibility guideline states that the claim lasts for 30 days, within which the employees must claim their rights. The delay is to be mentioned with a good reason to claim it as directed.
  • This gratuity eligibility criterion is that the company is giving the final settlement to the employees after the end of the service.
  • The employment status is also important to determine the gratuity to be paid.

Tax exemption 

The legal heir or the widow of the employee receives the gratitude amount in case of their demise, which is also elaborated in the employment contract if they want to select a nominee.

This lump sum is free from taxation by legal terms, and the necessary terms should be understood by the employee and their employer. Taking legal advice can be a vital step for the company’s well-being as it provides enlightenment on every legal aspect and how to abide by it.

The gratuity eligibility guidelines state that the employer will clear any tax if the gratuity amount is up to 20 lakhs as deciphered by the Gratuity Act 1972.

The central, state, and local government gratuity paid is also exempt from taxation as per the rules and regulations.

The forfeiture

The gratuity can be canceled and forfeited if the employee is found to be disorderly or disloyal towards the company and its regulations. If they offended any other employee or their moral turpitude with actions and roles.

Conclusion

Gratuity eligibility and the entire process play a very crucial role for the employees that is security after retirement. Employers and employees must be aware of these rules and regulations to acquire maximum benefits as directed by the Government. By any chance, the employer fails to provide the gratuity in a given period. The employee should take legal advice and file a lawsuit against the employer to claim their rights.

The company or the employer pays the gratuity amount to express their appreciation. Sometimes, the employee does not receive any gratitude for their own services. This can be consulted with a lawyer as they may lay down options to file a case in Court to claim their unpaid amount.

Bhavya Choudhary

Written by

Bhavya Choudhary

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