Hello everyone. I have a query regarding actual payment of gratuity for eligble employees.
In my organisation there are 3 people who have completed more than 5 years of service as of 31-Mar-20.
Also the gratuity was not added into the CTC of the employees while joining as this practice of adding gratuity in the CTC was creating confusion in the mind of employees in understanding their net take home salary.
My query is the following
1) The employees are asking for their gratuity payment while continuing in service due to cash crunch. Can this be done?
2) If gratuity is paid now then will it still be exempt u/s 10 of IT act or be added to income.
3) If the employee continues to work for say another 6 years and as per Gratuity act again be eligible for gratuity then if pt.1 is possible he will be paid gratuity considering 6 years or 11 years.
4)Finally is it mandatory to mention gratuity amount in CTC sheet.
Please clarify if the above mentioned point can be done also.
From India, Mumbai
5In my organisation there are 3 people who have completed more than 5 years of service as of 31-Mar-20.
Also the gratuity was not added into the CTC of the employees while joining as this practice of adding gratuity in the CTC was creating confusion in the mind of employees in understanding their net take home salary.
My query is the following
1) The employees are asking for their gratuity payment while continuing in service due to cash crunch. Can this be done?
2) If gratuity is paid now then will it still be exempt u/s 10 of IT act or be added to income.
3) If the employee continues to work for say another 6 years and as per Gratuity act again be eligible for gratuity then if pt.1 is possible he will be paid gratuity considering 6 years or 11 years.
4)Finally is it mandatory to mention gratuity amount in CTC sheet.
Please clarify if the above mentioned point can be done also.
From India, Mumbai
Now-a-days it has become a practice of many organizations to include Gratuity payment, employer's share of PF & ESI, Insurance premium (if applied0 etc. in the CTC working sheet just to project the total cost on an employee.
As regards Gratuity payment to eligible employees, his/her service is counted till the last working
that he/she worked when he/she was relieved and that includes the notice period for which he /she do get his/her salary. As such gratuity payment will be calculated from the date he/she joined in a company till his/her last working day.
Gratuity is taxable.
The Income-tax Act, 1961 exempts gratuity from tax up to a certain limit. ... Earlier, gratuity up to ₹10 lakh was exempt from tax. This was extended to ₹20 lakh for employees covered by the Payment of Gratuity Act through an amendment in 2018.
Gratuity is a terminal benefit.
As mentioned above, payment of gratuity is to be made to an employee upon separation (by way of resignation/termination of services or retirement as per provisions of Payment of Gratuity Act, 1972. Hence gratuity payment should not be made to employees while they are continuing their services in a company.
From India, Aizawl
As regards Gratuity payment to eligible employees, his/her service is counted till the last working
that he/she worked when he/she was relieved and that includes the notice period for which he /she do get his/her salary. As such gratuity payment will be calculated from the date he/she joined in a company till his/her last working day.
Gratuity is taxable.
The Income-tax Act, 1961 exempts gratuity from tax up to a certain limit. ... Earlier, gratuity up to ₹10 lakh was exempt from tax. This was extended to ₹20 lakh for employees covered by the Payment of Gratuity Act through an amendment in 2018.
Gratuity is a terminal benefit.
As mentioned above, payment of gratuity is to be made to an employee upon separation (by way of resignation/termination of services or retirement as per provisions of Payment of Gratuity Act, 1972. Hence gratuity payment should not be made to employees while they are continuing their services in a company.
From India, Aizawl
Q1 No
Adding gratuity to CTC is a wrong practise as it inflates CTC.
For internal purposes cost of employee has to be worked out.
Every employee may not get gratuity.
Some may leave with lesser than 5 years continuous service.
Gratuity is a terminal payment.
It cant be paid in between while in service.
Any such payment if made by whatever name it is called will be taxable.
In case there is fund problem for employee, he can draw pf.
Some concessions are there due to covid
Hope this clarifies
From India, Pune
Adding gratuity to CTC is a wrong practise as it inflates CTC.
For internal purposes cost of employee has to be worked out.
Every employee may not get gratuity.
Some may leave with lesser than 5 years continuous service.
Gratuity is a terminal payment.
It cant be paid in between while in service.
Any such payment if made by whatever name it is called will be taxable.
In case there is fund problem for employee, he can draw pf.
Some concessions are there due to covid
Hope this clarifies
From India, Pune
My query is the following -
Q.1) The employees are asking for their gratuity payment while continuing in service due to cash crunch. Can this be done?
= Gratuity is a severance benefit payable as per the Gratuity Act/approved Gratuity Scheme. And there is no provision for payment of gratuity still while in service. This is not possible.
Q.2) If gratuity is paid now then will it still be exempt u/s 10 of IT act or be added to income.
= Subject to ans.Q.1, gratuity payment as & when paid, it is tax exempt up to Rs 20 lakhs from the previous ceiling of Rs.10 lakhs, which is u/Section 10(10) of the Income Tax Act..
Q.3) If the employee continues to work for say another 6 years and as per Gratuity act again be eligible for gratuity then if pt.1 is possible he will be paid gratuity considering 6 years or 11 years.
= If there is break in service, say after completing 5 yrs of continuous service becomes eligible for payment of gratuity. Then his/her continuation, no issue, but again to become eligible for gratuity, required to complete 5 yrs of continuous service. Which means it will be considered as a new innings.
Q.4) Finally is it mandatory to mention gratuity amount in CTC sheet.
= Legally, there is no mandatory provisions established in law w.r.t. to CTC domain till now. There is no compulsion whatsoever about CTC items. Generally, it's understood CTC components include gratuity quantum also among others which cannot be quantified upfront, except on notional basis assuming the emoluments on the entry. This again is not a cash cost to the employer, during the service, which is a liability to pay, arises only when the service of the employee is coming to a close either on superannuation or resignation or termination or closure or death.
From India, Bangalore
Q.1) The employees are asking for their gratuity payment while continuing in service due to cash crunch. Can this be done?
= Gratuity is a severance benefit payable as per the Gratuity Act/approved Gratuity Scheme. And there is no provision for payment of gratuity still while in service. This is not possible.
Q.2) If gratuity is paid now then will it still be exempt u/s 10 of IT act or be added to income.
= Subject to ans.Q.1, gratuity payment as & when paid, it is tax exempt up to Rs 20 lakhs from the previous ceiling of Rs.10 lakhs, which is u/Section 10(10) of the Income Tax Act..
Q.3) If the employee continues to work for say another 6 years and as per Gratuity act again be eligible for gratuity then if pt.1 is possible he will be paid gratuity considering 6 years or 11 years.
= If there is break in service, say after completing 5 yrs of continuous service becomes eligible for payment of gratuity. Then his/her continuation, no issue, but again to become eligible for gratuity, required to complete 5 yrs of continuous service. Which means it will be considered as a new innings.
Q.4) Finally is it mandatory to mention gratuity amount in CTC sheet.
= Legally, there is no mandatory provisions established in law w.r.t. to CTC domain till now. There is no compulsion whatsoever about CTC items. Generally, it's understood CTC components include gratuity quantum also among others which cannot be quantified upfront, except on notional basis assuming the emoluments on the entry. This again is not a cash cost to the employer, during the service, which is a liability to pay, arises only when the service of the employee is coming to a close either on superannuation or resignation or termination or closure or death.
From India, Bangalore
Dear madam,
Because of cash crunch, some employees of yours who have completed five years of service are asking for gratuiy while still wanting to continue in service. My views are as follows:
1.It is not permitted uder the provisions of PG Act/Rules as this is only payable on ceasing to be an employee due to termination of service or death.
2 If paid as gratuity it will be illegal. The legal aspect is abundantly brought out by the learned colleagues.
3 If the company still wants to pay, nothing stops it to pay under any in other head like ex- gratia, but perhaps it will attract tax.
Another option is for them to resign , get paid all dues including gratuity and join as fresh employee.
No legality involved in what should constitute CTC. Gratuity is considered as part of CTC , and rightly so ,as it becomes payable after the death of an employee even before completion of five years' of eligibile service.
Considering the legality involved and employees' expectations, you may take the call as appropriate.
Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant
From India, Mumbai
Because of cash crunch, some employees of yours who have completed five years of service are asking for gratuiy while still wanting to continue in service. My views are as follows:
1.It is not permitted uder the provisions of PG Act/Rules as this is only payable on ceasing to be an employee due to termination of service or death.
2 If paid as gratuity it will be illegal. The legal aspect is abundantly brought out by the learned colleagues.
3 If the company still wants to pay, nothing stops it to pay under any in other head like ex- gratia, but perhaps it will attract tax.
Another option is for them to resign , get paid all dues including gratuity and join as fresh employee.
No legality involved in what should constitute CTC. Gratuity is considered as part of CTC , and rightly so ,as it becomes payable after the death of an employee even before completion of five years' of eligibile service.
Considering the legality involved and employees' expectations, you may take the call as appropriate.
Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant
From India, Mumbai
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.
Job Work-outwork employees.docx