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What is gratuity? As per the current rules, gratuity is available to government employees as well as non-government employees. According to the Payment of Gratuity Act, 1972, it is mandatory for all employers having more than 10 employees on their payrolls to give gratuity after five years of service of the employee or on retirement.

How much you get? As per the Act, the gratuity amount is 15 days’ wage multiplied by the number of years put in by you. Here, wage means your basic plus dearness allowance. But whatever the amount, the employer’s liability is limited to Rs10 lakh. This means that if your gratuity entitlement comes to, say, Rs12 lakh, the employer is liable to pay only Rs10 lakh. However, depending on the company policy, your employer can also pay the full entitlement of Rs12 lakh.

The tax treatment The gratuity amount comes tax-free. However, you will get this exemption only up to Rs10 lakh received. Any amount you receive over and above that amount is taxable in your hands

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Published: 11 May 2010, 07:51 PM IST
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