‘Gratuity’
~ the dictionary meaning is : a tip
given to a waiter, taxi driver, etc. It also means : sum of money paid to an employee at the end
of a period of employment. Every employee
looks forward to peaceful retirement as they near the homebend !!
For topic of the
day – it is about Employee benefit (social security !) .. .. Gratuity is a benefit received by an employee
for services rendered to an organisation. For companies covered under the
Gratuity Act, this benefit is paid when an employee completes five or more
years of service with the employer. The Gratuity Act applies to establishments
employing 10 or more persons. The
primary objective of providing a gratuity scheme is to provide a retiring benefit
to the workman who have rendered long and unblemished service to the employer
and thereby contributed to the prosperity of the employer.
In Western Nations
the concept of Social security is "any government system that provides
monetary assistance to people with an inadequate or no income." Social
security is enshrined in Article 22 of the Universal Declaration of Human
Rights, which states: Everyone, as a member of society, has the right to social
security and is entitled to realization, through national effort and
international co-operation and in accordance with the organization and
resources of each State, of the economic, social and cultural rights
indispensable for his dignity and the free development of his personality.
In economic
parlance, Gratuity is a defined benefit plan given by the employer to the
employee parting for the services rendered. In India, we have a statue - Payment of
Gratuity Act, 1972 - an Act to provide for a scheme for the payment of gratuity
to employees engaged in factories, mines, oilfields, plantations, ports,
railway companies, shops or other establishments and for matters connected
therewith or incidental thereto. It was enacted by Parliament in the Twenty-third Year
of Republic of India and called Payment
of Grataity Act, 1972.
Section: 4 of the
Act states : Payment of gratuity. (1)
Gratuity shall be payable to an employee on the termination of his employment
after he has rendered continuous service for not less than five years, - (a) on
his superannuation, or (b) on his retirement or resignation, or (c) on his
death or disablement due to accident or disease: Provided that the completion
of continuous service of five years shall not be necessary where the
termination of the employment of any employee is due to death or disablement:
Provided further that in the case of death of the employee, gratuity payable to
him shall be paid to his nominee or, if no nomination has been made, to his
heirs, and where any such nominees or heirs is a minor, the share of such
minor, shall be deposited with the controlling authority who shall invest the
same for the benefit of such minor in such bank or other financial institution,
as may be prescribed, until such minor attains majority.
As per Section
4(1), the completion of continuous service of 5 years is not required where
termination of employment is due to death or disablement. In such case
mandatory gratuity is payable. Gratuity is paid at a rate of 15 days wages for
every completed year of service or part thereof in excess of Six months. The
wages here means wages last drawn by the employee. The "15 Days
Wages" will be calculated by dividing the last drawn wages by 26 and
multiplying the result with 15.
The good news for
employees is that Parliament has passed
the Payment of Gratuity (Amendment) Bill which will increase the ceiling of
tax-free gratuity amount to Rs 20 lakh from Rs 10 lakh. Further, this will
allow the government to increase the gratuity ceiling from time to time without
amending the law.
The amendment bill
is seen as a long awaited change, much
expected to bring private sector employees at par with their public sector
counterparts as far as gratuity ceiling is concerned. The gratuity amendment
act, once it comes into force after receiving Presidential assent and
publication in the Official Gazette, would provide greater defined benefit
advantage for employees as it is likely that income tax limits are increased as
it has been the case in the past. The amendment also gives flexibility to the
Government to extend the ceiling in the future by mere notification as opposed
to the requirement of an amendment.
The amendment
further allows the government to fix the
period of maternity leave for female employees as deemed to be in continuous
service in place of the existing 12 weeks enhancing the maximum maternity leave period
to 26 weeks.
The enhancement in
ceiling could mean that tax liability will be nil in respect of any amount upto Rs.20 lakh as gratuity. After
the Amendment bill comes to force, the government may raise the limit of Rs. 20
lakh further to increase the cap in gratuity amount as and when the need arises
without having to change the law. Amount of gratuity is directly proportional
to the tenure of service, and also to the last drawn salary. According to the formula, the time period of over six months or
more is considered as one year.
Section: 13 of the
Act categorically states that : No
gratuity payable under this Act and no gratuity payable to an employee employed
in any establishment, factory, mine, oilfield, plantation, port, railway
company or shop exempted under section shall be liable to attachment in
execution of any decree or order of any civil, revenue or criminal court.
With regards – S.
Sampathkumar
23rd Mar
2018.
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