Gratuity Act, Amendment, Rules, Eligibility, Abstract, Benefits in India

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As per the Gratuity Act, 1972, gratuity is the assured lump sum paid to an individual who has served the company for at least five years in a row. The recent hike in the gratuity amount from Rs. 10 Lakh to Rs. 20 Lakh as announced by the Indian government in the budget for the current fiscal has brought significant changes.

Generally, gratuity is payable in either of the below-mentioned instances –

  • Retirement
  • Resignation
  • Superannuation
  • Death
  • Disability
  • Layoff
  • VRS (Voluntary Retirement Scheme)

Gratuity rules are applicable to the following fields where an employee is likely to receive gratuity as per the rules –

  • Anyone working in railway, a factory, mining, plantation, oilfield, or any other governmental organisation
  • Shops or any other establishment where ten or more people are employed

The Gratuity Act extends to all the states in India, and to every company or organisation that has ten or more employees during the time of registration. It must be noted that this act continues to be valid for every employee as well as an organisation even if the total number of employees reduces later.

Who are eligible for gratuity?

As per gratuity rules, anyone who has served the company for five years or more is eligible to receive a gratuity amount.

  • This financial benefit is extended to every employee irrespective of whether they are skilled, semi-skilled or unskilled.
  • An employer holding an administrative, managerial or clerical post is also eligible for gratuity.

However, anyone employed directly under the state or central government is exempted from receiving gratuity as per the Gratuity Act. Further, in case termination of an employee is due to death, then the continuous service of 5 years is not considered, and this amount is extended to the nominee.

How can you benefit from gratuity?

Apart from being a large amount received at the end of five years of service or more, it also has some other benefits –

  • Tax exemption

You can enjoy tax benefits under the Income Tax Act if your gratuity amount is within Rs. 10 Lakh. Although, in case you continue to serve in the same organisation, the exemption will not be valid according to the Gratuity Act.

In such a situation, you need to pool your gratuity amounts received from both your previous and current employer to derive the exemption limit.

  • Nomination

Soon after completing one year of service in an organisation, you are required to appoint a nominee for the gratuity you are likely to receive after five years of service. You can fill Form F and continue with the nomination procedure, which can be changed as per the gratuity rules by submitting Form H with your employer.

Nominating your child could be a way to gift money to your children. Further, the amount received is also non-taxable. In case of absence of nominee, the amount is transferred to immediate family members – spouse, children, dependent parents or any adopted child.

Regardless, this is a lump sum amount, and you can opt to invest it further in a fixed deposit scheme to grow the corpus. Consequently, this could be one of the life-changing moments that influence your investment strategy. It is mainly due to the assured returns that you will receive from the fixed deposit.

Some reputed financial institutions like Bajaj Finance offer benefits like flexible tenor (1 to 5 years) and high interest rates on Fixed Deposit schemes to help you make the most of these investment options.

Additionally, you can also plan your payouts from FD according to your requirement. You can opt for the maturity amount at the end of tenor, or you can go for periodic payouts, be it monthly, quarterly, half-yearly or yearly. In this regard, you can use an online FD calculator to estimate the approximate value you are supposed to receive on maturity.

Hence, by investing in FD, you are likely to make your retirement fund pay you a monthly salary. In this regard, the recent amendment in the Gratuity Act has been a remarkable milestone for the employees as it allows creating a larger corpus. You can enjoy various benefits through it in terms of meeting your immediate financial obligations as well as by further investing the amount in FD.

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