Payment of Gratuity Act: Know The Forms, Eligibility and More

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The Payment of Gratuity Act was introduced in 1972. It is a benefit to which an employee is considered eligible after the employee has completed a minimum of 5 years and is leaving, retiring (58 years) or is dead. Last year, the government increased the gratuity tax exemption limit from 10 lacs to 20 lacs.

When can I withdraw my gratuity money?

The gratuity money can be withdrawn at the time of leaving, retirement, death and disability.

Is my company legally bound to give me gratuity?

This act is applicable to all the companies with 10 or more employees. So, yes, if your company has more than 10 employees, it is bound to give the gratuity to its employees who have worked with them for 5 years at least.

What is the eligibility criteria?

  • Any employee is eligible after 5 years. However, 4 years 8 months (242 days) are also counted as 5 years.
  • Moreover, 4 years, 190 days are also counted as 5 years if the company runs 5 days a week.
  • Furthermore, 4 years and 86 days are also to be counted as 5 years in case the business is seasonal.
  • If the employee has completed 6 months after eligibility, the 6-month tenure would be counted as a year.
  • The employee can claim gratuity amount before 5 years in case of disablement.

Is the gratuity amount taxable?

Under section 10 (10) (ii)  gratuity amount is non-taxable up to 20 lacs. However, this exemption is offered once in a lifetime. If any person is withdrawing gratuity for the second time, the amount is taxable.

However, if the gratuity of a person is withdrawn at the time of his death, no tax will be levied. If the employee is 80% disabled, he is given the same treatment as that of the dead.

What is the formula for gratuity calculation?

You can calculate the gratuity amount by adding the latest basic salary and Dearness allowance (if any). Thereafter, you need to multiply it with 26 (days excluding Sundays), and by 15 (half of the month). The digit will then be multiplied with the total number of service years.

Gratuity= (Last month basic salary+DA) / 26 x 15 x number of service years

To get an even better understanding of the formula, click here.

What are the various types of Gratuity Forms?

The most frequently used gratuity forms are listed below.

  • Form F- Also known as Gratuity nomination form F, this form is required when you want to nominate someone. The proportion by which the gratuity will be shared should also be mentioned in this form. Use this form F for gratuity nomination.  

  • Form G- This form is required to do iteration in the current nomination form. Basically, this is a fresh nomination form.

  • Form K- This form is for the legal heir. If the employee is dead, his heir can fill the form till one year to withdraw the amount.

  • Form L- This form is used to send notice to the company if the employee is facing any trouble in gratuity withdrawal because of the company.

  • Form E- This form allows the married women going through a divorce to exclude their husband from their gratuity nominee.

  • Form I- This form is used to claim the gratuity amount by the employee when he is leaving the organisation. The reason for leaving the organisation can be retirement, voluntary retirement, change in the job after a minimum of 5 years or due to disablement because of some accident. Please note in case of disablement, an employee can claim the gratuity amount before 5 years.

You can find all these forms here – Payment of Gratuity Form

Paying gratuity to your employees can be a time-consuming and confusing task. An intuitive HR software like HR-One can help you in making the separation process of employees hassle-free for you and a happier one for them. Get in touch today!

Sukriti Saini

Sukriti Saini works as a content marketing strategist at HR-One. She has done Bachelors in Journalism from Delhi University and carries several years of experience in content development. HR trends, Productivity, Performance and topics related to Employee Engagement garner most of her writing interest here. During leisure, she loves to write and talk about fashion, food & life.. Tweets at @sukritisaini

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