Resigning from a job is a major decision, and understanding your financial entitlements is crucial. One such benefit is gratuity, a lump sum amount paid by an employer to an employee as a token of appreciation for long-term service. The Payment of Gratuity Act, 1972 governs gratuity payments in India. Let’s explore how to claim gratuity after resignation, including eligibility, the claim process, calculation methods, payment timelines, and tax implications.
Eligibility for Gratuity
To be eligible for gratuity, an employee must meet the following conditions:
| Criteria | Description |
|---|---|
| Minimum Service | An employee must have completed at least 5 years of continuous service with the same employer. |
| Exceptions | The 5-year condition is waived in cases of death or permanent disability due to accident or illness. |
| Type of Employment | Gratuity is applicable to employees in factories, mines, oilfields, railways, shops, or other establishments where ten or more employees work. |
Steps to Claim Gratuity
Step 1: Submit the Gratuity Claim Application
The employee (or their nominee in case of death) must submit a formal request using Form I to the employer. If the employee is unable to file it, their legal heir or nominee can apply on their behalf using Form J or Form K.
Step 2: Employer Verification and Approval
Once the employer receives the application, they are responsible for:
- Verifying the claim details
- Calculating the gratuity amount
- Approving the claim and initiating the payment process
Step 3: Gratuity Calculation
Gratuity is calculated using the following formula:
Gratuity=(Last drawn salary×15/26)×Number of years of service\text{Gratuity} = (\text{Last drawn salary} \times 15/26) \times \text{Number of years of service}
| Example Calculation |
|---|
| Last drawn salary = ₹30,000 |
| Years of service = 15 |
| Gratuity = (30,000 × 15/26) × 15 = ₹2,59,615 |
Note: The last drawn salary includes basic pay, dearness allowance (DA), and commission (if applicable).
Payment Timeline
| Step | Timeline |
|---|---|
| Gratuity Becomes Payable | The day the employee resigns, retires, or in case of death/disability. |
| Employer Approval and Payment | Within 30 days from the claim date. |
| Penalty for Delay | If payment is delayed, the employer must pay interest from the due date until the payment is completed. |
Handling Disputes
In case of a dispute, an employee can:
- Approach the Controlling Authority – File an application in Form N with the designated labor authority in their region.
- File an Appeal – If dissatisfied with the decision, either the employee or employer can file an appeal within 60 days.
- Seek Legal Action – If the matter remains unresolved, the case can be taken to labor courts.
Required Documents
When claiming gratuity, employees or their nominees must provide:
- Duly filled application form (Form I for employees, Form J/K for nominees)
- Employment proof (such as an experience letter or service certificate)
- Last drawn salary slip
- Death certificate (if applicable, in case of nominee claims)
Tax Implications on Gratuity
Gratuity is subject to income tax, but exemptions apply:
| Employee Type | Tax-Exempt Limit |
|---|---|
| Covered under Payment of Gratuity Act, 1972 | Up to ₹20 lakh is exempt from tax. |
| Not covered under the Act | Least of the following: 1. ₹10 lakh 2. Gratuity calculated using the formula 3. Actual amount received |
Key Notes:
- Any gratuity exceeding the exempted limit is taxable under the employee’s income.
- Government employees receive full tax exemption on gratuity.
Conclusion
Gratuity serves as an essential financial benefit for long-term employees. Following the correct claim procedure ensures a smooth and timely disbursement. Employees should:
- File their gratuity claim on time after resignation.
- Ensure the employer processes the claim within 30 days to avoid delays.
- Seek legal help in case of disputes.
Understanding gratuity rules and tax implications helps employees maximize benefits while ensuring compliance with regulations.
FAQs
Can I get gratuity if I resign before completing 5 years?
No, gratuity is only payable if you complete 5 years of continuous service, except in cases of death or disability.
How can I check my gratuity eligibility online?
You can check eligibility using the EPFO portal or consult your employer’s HR department.
Is gratuity applicable to contractual employees?
If a contractual employee completes 5 years of continuous service, they are eligible for gratuity.
What happens if my employer refuses to pay gratuity?
You can file a complaint with the Controlling Authority under the Gratuity Act or approach labor courts.
Can an employer deny gratuity?
Employers can deny gratuity only if an employee is dismissed due to misconduct involving moral turpitude, riot, or criminal offenses.