Kolkata: Gratuity and Employee’s Provident Fund (EPF) are the two social security schemes that are extremely significant for any employee in India. Both the schemes have kept their popularity and usefulness intact even as the country has transitioned from a controlled economy to a market-oriented one. The importance of gratuity lies in the fact that unlike EPF one does not have to wait for it till one retires. If an employee retires after a continuous period of five years, gratuity is paid at one go.
As the name implies, gratuity is paid as a token of appreciation from the employers of the service rendered by long-standing employees. Gratuity is payable when the association with a company ends either due to resignation or by superannuation. However, there is one important point that one has to remember. Though there is the rule of an employee working for at least a minimum of five years to be paid gratuity, it does not hold if an employee has expired or suffers physical disability.
The rules say, one has to claim gratuity. An employee has to apply in prescribed forms. This form is referred to as “Form 1” and the employee has to fill it up and submit to the employer. This form contains all the details of the service tenure of the employee — his/her name, address, department of work, date of joining, date of leaving, total service period and last drawn salary. According to the legislation, gratuity is calculated according to a fixed formula. It goes like this: Gratuity = (Last drawn salary X 15/26) X Number of years of service. In this case the last drawn salary means the basic salary and DA (dearness allowance).
But if gratuity is to be claimed by the nominees or legal heirs of an employee if he/she has died, the form to be submitted is not Form 1. They have to fill up and submit form J or K along with the death certificate of the employee.
Usually a company takes a few to pay gratuity. The Payment of Gratuity Act, 1972 says that an employer should pay the amount within a period of 30 days from the day it becomes payable. If an employee is not paid within this time window, he/she is entitled to interest on the period of delay. Section 10(10 of the Income Tax Act says that if the amount payable is within Rs 20 lakh, it is not subject to income tax.
