When will you get gratuity payment?

By bankbazaar | June 9, 2010

According to the law, the amount payable as gratuity is equivalent of half month’s salary for every full year of your employment or Rs. 10 L, whichever is lower. This is the minimum amount payable under the law. Some companies may pay a higher amount. This upper limit depends upon the company’s policy. For example, if you have put in 10 years of service before you resign from the company, you are entitled to the lower amount of: An amount equal to 5 month’s salary or Rs. 10L.

Gratuity payment is a lump sum that your company will pay you as an acknowledgment of your loyalty to the company. Naturally, gratuity becomes payable only after you have spent a certain number of years with the company. You will receive this benefit either at the time of retirement or when you resign from employment. Let us take a look at how gratuity benefit is paid.

There are two conditions that must be satisfied in order to be eligible to get the gratuity benefit

  1. Your organization has a minimum of 10 people on payroll, i.e., at least 10 employees receiving salaries from the organization. Note that people on contract are not considered.
  2. You have completed at least 5 years with the organization. If an employee dies during the tenure of his employment, the 5 year rule is relaxed. So, even is such employee’s period of service is as little as 1 year, he / she are eligible to receive gratuity if the first condition is met.

Calculation of the amount of gratuity payable

According to the law, the amount payable as gratuity is equivalent of half month’s salary for every full year of your employment or Rs. 10 L, whichever is lower. This is the minimum amount payable under the law. Some companies may pay a higher amount. This upper limit depends upon the company’s policy. For example, if you have put in 10 years of service before you resign from the company, you are entitled to the lower amount of:

An amount equal to 5 month’s salary

Or

Rs. 10L.

However, if your company has a policy to pay its employees a maximum of Rs.20L as gratuity, then the amount payable to you when you resign after 10 years of completed service will be the lower amount of:

An amount equal to 5 month’s salary

Or

Rs. 20L.

Your last paycheck before you retire or resign is the amount you should consider in your gratuity computation. Also, only your ‘Basic’ and ‘Dearness Allowance / DA’ should be taken into consideration.

For example, assuming Anil retires this year after completing 30 years with his company and his last pay check looks like the following, let us calculate the amount of gratuity that Anil’s company should pay him:

Basic: Rs. 60,000

DA : Rs.10,000

HRA: Rs. 26,000

Education Allowance: Rs.5000

Travel Allowance: Rs. 15,000

Gratuity payable: (Last month’s salary / 26) * 15 * Completed years of employment

Last month’s salary to compute gratuity = Basic + DA = Rs. 70,000.

Gratuity payable = (70,000/26) *15 *30 =   Rs. 12,11, 538/-

Since there is a limit of Rs.10L, Anil is entitled to receive Rs.10L towards gratuity. If his company has a policy to pay gratuity up to an amount of Rs.15L, then Anil’s gratuity benefit will be Rs.12.11L.

Tax treatment for gratuity

The amount of gratuity received by a person is taxed as salary income under the head ‘Income from salaries’ on the income tax return. If you are a government employee, then according to the provisions of Section 10 (10) of the Income Tax Act, the gratuity amount paid is completely tax free.

Gratuity amount received by non government employees covered by the Payment of Gratuity Act is tax free up to the least amount of the following:

  • Amount of gratuity paid or
  • 15 days salary for every completed year of employment (salary is the amount of last salary drawn)
  • Rs. 10 L

Where companies pay gratuity voluntarily to employees who are not eligible to receive gratuity under the Act, such amount is tax free up to the least amount of the following:

  • Amount of gratuity paid or
  • Half month’s salary for every completed year of employment (salary is average salary received in the last 10 months of service.)
  • Rs. 10 L

Note that this limit is a maximum exemption for all your years of service. It applies to all the amounts of gratuity you will receive in your entire career from all your employers. So, if you receive gratuity three times in your life and you exhaust the above limit within the first two times you receive gratuity, then the third time you are paid gratuity, it will be completely taxed according to your current tax slab rates.

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31 thoughts on “When will you get gratuity payment?

  1. Ketan Jadhav

    Hi,
    I am a software engineer.
    I was working as a Team leader in one of the Private Limited (Information and Technology) company. I completed the 6 years and after that I resign and join new company. Can you please let me know how to apply for gratuity.

    Reply
    1. Sunil Kumar Sharma

      Dear Sir,
      I am a relatationship Manager.
      I was working as a Executive Sales Manager in Reliance Nippon Life Insurance Co Ltd From 31th oct 2008 . I complete 8th year or 6th month in this orgenizatation. after than i regined fom this service . my graduty amount cut from my salary was 330 rupees per month. please tell me that how can i applied this & how many amount Iwill get. or waiting period after reginatation . thanks

      pls reply fast
      warm regards
      Sunil Kumar Sharma
      Mobile No-9719945032

      Reply
        1. Team BankBazaarTeam BankBazaar

          Hi Sunil Kumar Sharma,
          We hope your query has been answered satisfactorily.

          Cheers,
          Team BankBazaar

          Reply
      1. Team BankBazaarTeam BankBazaar

        Hi Sunil Kumar Sharma,
        You can apply for your gratuity after resigning from your present organisation. Usually, you will receive your gratuity within 30 days of applying for the same. Read this post for more information and to find out how to calculate the gratuity you are eligible for.

        Cheers,
        Team BankBazaar

        Reply
  2. Sekhar

    Sir if gratuity not claimed after 30 days of releaving from company what we have to do?

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Sekhar,

      Thanks for writing to us. Please get in touch with your previous employer to get the details. As far as we know, there is no time limit for claiming your gratuity as long as you have resigned.

      Cheers,
      Team BankBazaar

      Reply
  3. B Muni sekhar

    Hi,
    I worked as a sports trainer in a sports company for 6.6 years. When I asked the amount that I am going to receive, the company people showed me this calculation. Please let me know whether it is correct or not.
    My salary : 21000, Basic : 8000.

    Gratuity = (Basic/2) * 5 years.
    = (8000/2)* 5
    = 20000/-
    I will receive an amount of 20000 rs. This is the amount my company is going to pay me. Is this correct. Please let me know and do the needfull.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Muni sekhar,

      While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you consult your financial advisor to understand this better.

      Cheers,
      Team BankBazaar

      Reply
  4. Simrat

    Hi,

    If the company has paid gratuity to employees who are still working, i.e., gratuity paid before their resignation or death, then what is the implication of the same?
    Is it taxable in the hands of employees?
    Further, if the employee resigns later on then will the gratuity be payable at that time?

    TIA

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Simrat,
      It is not possible for an employer to give gratuity before resignation. So, the question of taxation doesn’t arise.
      Cheers,
      Team BankBazaar

      Reply
  5. Ganesh Navhale

    I am working same company from last 4.9 year
    Now i resigned but 5 year not completed can I get Gratuity

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Ganesh Navhale,

      You have to complete 5 years of continuous service with a company to be eligible to get gratuity. If there are only a few months remaining for you to complete 5 years of service, you can request your company to give you your gratuity. Keep in mind that this might be at the discretion of your employer.

      Cheers,
      Team BankBazaar

      Reply
  6. Arjun u

    i was working for an consulting firm, i have recently resigned the company & i am asking them to give my gratuity, they are telling me to wait for 6 mths , since i am the 1st employee who has served 6 yrs,
    Kindly help when should i ask them since i have already resigned the firm,

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Arjun u,

      Your company has to pay you your gratuity within one month of your application for the same. In case of delay, they are liable to pay you a penal interest. Please check with them.

      Cheers,
      Team BankBazaar

      Reply
  7. kaleem

    I was working for 12 years in a pvt co and resigned 6 months back and joined in other co can I apply for gratuity.

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi kaleem,

      Yes, you are eligible for gratuity. Please read this article for more information.

      Cheers,
      Team BankBazaar

      Reply
  8. snigdha

    Hello
    what the procudure of claiming a gratuity money if the employer is not helping in withdrawing it? my mother served a private school for almost 30 years, how can she withdraw her gratuity without employer’s help?

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi snigdha,
      Write to the employer stating the gratuity rules. Read this for more information. If they still refuse to pay, you can approach the Labor Commissioner, Inspector under Payment of Wages Act or Controlling Authority of Gratuity with copies of the claim and seek their help.
      Cheers,
      Team BankBazaar

      Reply
  9. MOHAMMED

    Hello,

    I was worked 4years and 8 month in private X BPO 2006 to 2011 company when I resigned, I don’t have knowledge to apply gratuity that time. after that I have working in anther Y BPO company past 6years 2011 till now. Please advise can I apply now for gratuity to X BPO company after long time. Please advise to Help this

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Mohammed,

      You can claim gratuity only after completing 5 years in a single company. In your case you can claim it only from company Y and not company X.

      Cheers,
      Team BankBazaar

      Reply
  10. Aditi

    If an employee completed only 2 years in the organization,Than who is entitled to get the gratuity?

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Aditi,

      You will be eligible for gratuity only after completion of 5 years in any organisation. In this case, you are not entitled to gratuity.

      Cheers,
      Team BankBazaar

      Reply
  11. VINAY MEHTA

    HI SIR,

    I HAVE RESIGH TWO MONTHS COMPLETE BUT TILL TIME I HAVE NOT RECD GAURITY AMOUNT,
    I HAVE COMPLETE 10.7 YEARS IN COMPANY .

    NOW WHAT CAN I DO SIR PLEASE REPLY.

    Reply
    1. Team BankBazaar

      Hi VINAY MEHTA, We suggest you speak to the HR/Finance team at your old office to get a date on when the gratuity will be sent to you. Cheers, Team BankBazaar

      Reply
  12. Abhinav Srivastava

    If any employe is screened out from govt job @ the age of 56 . Is he entitled for gratuity?

    Reply
    1. Team BankBazaar

      Hi Abhinav Srivastava, If the employee has completed 5 years in a company that falls under the Gratuity Act, then the employee is eligible for gratuity. Cheers, Team BankBazaar

      Reply
  13. Mohammad Firoj

    Hi Team,

    I would like to know will I get my gratuity as joining date was Aug 9, 2012 and last day worked Aug 8, 2017. Will it be considered as 5 yeas completions or not.

    Please response

    Thanks

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Mohammad, Yes, you’re eligible for gratuity. Cheers, Team BankBazaar

      Reply
  14. sandeep boid

    I was worked in hotel sun n sand pune which is come under classic citi investment pvt ltd. Hotel was closed on 15 june 2017 almost 2 month passed but still not got the gratuty to any emplyoe is there any thing to do legal way please assist

    Reply
    1. Team BankBazaarTeam BankBazaar

      Hi Sandeep, If you have worked for more than 5 years, you are eligible for gratuity. Also, if the company has more than 10 employees, they need to pay gratuity. We suggest that you take the help of your legal counsel for getting your gratuity.

      Reply

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