If I resign from my company after 4.5 years of service, am I eligible for gratuity?

#FrequentQuestionAnswered

Does being part of an organization for 4.5 years make the employee eligible for gratuity?

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Answer- Gratuity is applicable to an employee who completes 5 years of continuous service with the organisation. As per a ruling made by the Madras High Court, individuals who have completed 240 days in their fifth year of service are eligible for gratuity.

In case of additional questions, let us know.

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Hi,

No, you will not be eligible for Gratuity as you have only completed 4 Years and 6 Months whereas to get Gratuity you have should complete 4 Years and 8Months.

Hope this information is helpful for you.

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In continuation to the above, If the company wants to give Gratuity to outgoing employees before completion of 5years, is it taxable under Income Tax Act.?

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Hi,

Any amount given towards Gratuity will be not be taxable up to 20L.

Hope this information will help you.

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Can it be any amount. Or should I follow the Gratuity Rules for computing Gratuity payment. ?

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Hi,

If you are paying amount under Gratuity then you have to calculate as per Gratuity Act:

Basic/2615No of years

Thank You.

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Thank you for the clarification.

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Hi,

No

Criteria for eligibility of gratuity is 4 years plus 240 days of working.

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Hi,

No

Criteria for eligibility of gratuity is 4 years plus 240 days of working.

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Hi Parvathi,

PLease note, 240 days is nothing but 8 months.

Kindly verify and revert if i m still incorrect in my replies.

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hi,

its not 240days. Its 4years plus 240days.

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Hi

It is 240 working days, excluding weekly Offs, but includes Paid leave, maternity leaves, paid holidays and paid layoff period if any.

Generay we call it is as continuous service period.

Regards
Venkata Kumar

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It is 4 years and 240 days. These 240 days of 5th year are working days, excluding weekly offs, but includes paid aka earned eave, maternity leaves, paid holidays and paid layoff period if any.

Please note, some companies give weekly offs as Saturday + Sunday. However, as per Shop and Establishment Act, you can have single day as weekly off.

So, assuming Company A gives Saturday and Sunday as weekly offs, can someone let me know for this gratuity period calculation of 240 days of 5th year, includes both Saturday and Sunday as weekly offs or only Sunday?

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Hi Shefali,

Usually, the calculations are made on all days that we consider an employee for ‘Payroll’ be it Saturday or Sunday, as we include them in payroll.

In this case, if an employer as per the policy determines Saturdays are week off, then it’s to be included in the calculations.

Hope this helps.

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Hi,

Gratuity is applicable to employee who has completed 5 YEARS OF CONTINUOUS SERVICE (4 YEARS 240 DAYS) .

An Employer can decide to pay Gratuity to employee who full fills the above condition or not.

If Gratuity is paid as per the norms (Applicability & Calculation) of Gratuity Act, then it is tax free upto 20 Lakhs, else it will be treated as Taxable Income in the hands of employees.

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By virtue of the judgement of the supreme court rendered under the provisions of the Industrial Dispute Act in Surender Kumar Verma Vs Central. Industrial Tribunal,[(1980) (4) S.C.C.433)].
As the definition of continuous service in Industrial Dispute Act and Payment of Gratuity Act are synonymous, the same principle can be adopted under the act also and hence the below procedure is applicable
4 years & 6 months = (190 days = 1 year) where companys follow 5 days a week
4 years & 8 months = (240 days= 1 year) where companys follow 6 days a week

The payment of gratuity act (second ammendment) 1984 clarifies this…
Therefore, if you resign after 4.5 years of service… you are not eligible for bonus… Hence clarified

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I beg to differ to what Arpana has mentioned regarding tax treatment. As per Income Tax Law, any gratuity paid as per the Payment of Gratuity Act is exempt under the Act. Effectively, if employee has not completed eligibility criteria of 4 years 8 months, then the amount so paid cannot be termed as Gratuity under Payment of Gratuity Act and hence, it is taxable. 'Other views are also welcome on this

Darshan

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Hi Darshan,

I will come back to you on this, please.

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Hi Darshan,

Anything Under the HEAD Gratuity will be tax free to the extent of 20L and gratuity is obviously paid only when employee complete 4 Years and 240 days. The Head called Gratuity is what only considered for calculation in Income Tax apart from this head , others heads like Other Earning , bonus Ex gratia etc., would be completely taxed irrespective of any any amount.

Hope this information will be useful for you.

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