What is Gratuity?
  • Gratuity is the monetary benefit provided by the employer to his/her employee for the services rendered by him during the period of employment.
  • A minimum of five years of service with an organisation is mandatory for availing the benefit of gratuity.
  • The Payment of Gratuity Act 1972 makes it mandatory for the employers to pay their employees gratuity at the time of quitting, provided certain conditions were met.
  • An organisation comes under the purview of the Payment of Gratuity Act 1972 if it has 10 or more employees on any single day in the preceding 12 months.
  • The Payment of Gratuity Act follows the rule of ‘Once Covered, Always Covered’ which implies that that once an organisation comes under the Act, it will always remain covered even if the number of employees falls below 10.
  • The Ministry of Finance has now enhanced the income tax exemption for gratuity under Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakhs.