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There is often confusion among private sector employees about gratuity. Actually, people think that it is available only after 5 years of service, but in certain situations, gratuity can be received even for less than 5 years of service. So, the rules for this are different, which are important to know.
Gratuity will be available in less than 5 years
People doing private jobs often have questions and confusion about gratuity. They keep thinking that gratuity is available only after 5 years? Actually, usually gratuity is paid only after 5 years of continuous service, but in certain circumstances this timing is not necessary. For example, if an employee dies or becomes permanently disabled, then the amount of gratuity can be given to him or his dependents even before 5 years. So this is why it is important that every employee has the correct information about the rules related to gratuity.
What is gratuity?
Gratuity is considered a kind of thanks or reward, which an employer gives to his employee for working continuously in the company for a long period. It is a lump sum payment. It also comes under the ‘Payment of Gratuity Act, 1972’, which has been made with the aim of providing financial security to all employees at the time of retirement. It is not a part of any employee’s salary, but is an extra benefit.
What is the important eligibility for gratuity?
Actually, according to its Act, the first and most important condition for getting gratuity is that the employee has worked continuously for at least 5 years in the same company. This rule applies to getting gratuity after retirement, resignation or leaving the job. So if any employee leaves the job before 5 years, then he generally cannot be entitled to gratuity.
Can gratuity be received for working for less than 5 years?
Although most people think that it is necessary to work for at least 5 years to get gratuity, but this is not always true. Because at certain times this rule does not apply. So if an employee dies during service, then gratuity can be paid to his nominee regardless of the service period. Similarly, if someone becomes permanently disabled due to an accident or serious illness while working, then he can also have full right to get gratuity.
What does 5 years continuous service mean?
The ‘Payment of Gratuity Act, 1972’ has clarified about ‘5 years of continuous service’. If an employee has worked for 240 days or more in the last year, then he will be considered as ‘full year’ for that year. That is, for example, if an employee has worked for 4 years and 240 days, then he will be considered as having completed 5 years of service for calculation of gratuity.
How is gratuity calculated?
If you want to know how much gratuity you will get on leaving the job, then its simple formula is: (Last salary × 15 / 26) × years of service. Last salary includes your basic salary and dearness allowance (DA). According to the Gratuity Act, calculation is done on the basis of 15 days’ salary, assuming 26 working days in a month. For example, if your last salary is ₹35,000 and you have worked for 7 years, then you can get ₹1,41,346. In this, a maximum of ₹20 lakh gratuity can be available tax free.
What is the tax rule on gratuity?
The rule related to tax on gratuity depends on the type of employee and it is important for every employed person to know it. So if you are a government employee, then the entire gratuity amount you get is tax free, and for employees working in the private sector, there is no tax on gratuity amount up to ₹ 20 lakh. (Note- The news is based on general information, consult an expert for more information on gratuity)
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