All About The Gratuity Meaning or Gratuity Rules

Gratuity Meaning or Gratuity Rules

Gratuity meaning implies funds disbursed to individuals having completed at least five years of service with a particular company. It is a loyalty benefit provided to them for their distinguished services. All employees working in the private, as well as the public sector, are entitled to such benefits, provided their employment is permanent. Gratuity funds are extended to contractual employees at the discretion of the company they work in.

Gratuity Rules

The total amount of gratuity payable by a company is subject to various clauses, such as –

  • Tenor of service

Permanent employees employed for at least five years are eligible for such benefits as covered under the gratuity meaning. The total value of gratuity funds is computed after taking into account the tenor of employment restricted to the number of years an individual is employed. The month segment is overlooked in such cases. For example, an individual having six years and eight months of employment will only be eligible for gratuity income of six years.

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However, in case of death or permanent disability of an employee before completion of the stipulated tenor of five years, the total amount has to be paid to the nominee registered, or an immediate family member.

  • Number of employees

Organisations covered under the Payment of Gratuity Act, 1972 (having more than ten employees) are required to calculate total funds as per the gratuity meaning to be disbursed using the following calculator-

Total gratuity = the last salary paid x (15/26) x number of years employment.

Thus, businesses having at least or more than ten employees are required to pay a gratuity of the amount displayed by this calculator.

However, companies having less than ten employees for the past 12 months can calculate gratuity as follows –

Total gratuity = the last salary paid x (15/30) x number of years of employment.

  • Total amount

One of the significant gratuity rules is that the total amount of funds disbursed cannot exceed Rs. 10 Lakh under any circumstances. Employees entitled to such compensation do not have to pay income tax on the same as well.

  • Taxation

Gratuity received by government employees is exempted from any income tax calculations. Individuals working in the private sector, on the other hand, receive partial tax waiver, provided the total funds received are lower than either –

  1. A gratuity of up to Rs. 10 Lakh.
  2. Salary received for 15 days of services per month for the full duration of employment.

Such funds obtained help individuals plan finances for early retirement.

How To Invest Gratuity Gunds?

The underlying gratuity meaning is that funds received offer a substantial incentive to employees to stick to one job and deliver quality services. Such loyalty rewards earned help in retirement planning of an individual, as well as provide financial stability.

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As gratuity income primarily constitutes the retirement fund of individuals, safe investment initiative must be undertaken for the same. Investing the total amount in share market might be a risky venture, as it is subject to extreme volatility. Returns generated on the same are not assured, and in case of business cycle downturn, a significant portion of the total amount can be lost.

Thus, Indian market volatilities and various investment methods available should be analysed before choosing the right investment option to pool your resources in. A significant proportion should be maintained in non-market linked instruments to dilute the risk factor at any given time.

One of the most popular investment tools immune to market fluctuations and preferred by the masses are fixed deposits, as they provide high-value, assured returns at negligible risk. Major financial institutions such as Bajaj Finance offer high rates of interests and ensure stable earning through top ratings from global credit rating agencies such as CRISIL and ICRA. It helps individuals earn high returns with Bajaj Finance FD with insignificant associated risks. Further, senior citizens can enjoy an interest rate of 0.35% higher than the regular returns.

With flexible lock-in period ranging from one to five years and benefits of cumulative deposits, investors can easily undertake investments satisfying their liquidity requirements. In case an individual requires the sum early, he/she can choose a lower tenor of investment in non-cumulative fixed deposits. Nonetheless, people looking for long term investment options for such gratuity income can opt for cumulative FD with a longer lock-in period.


Author Bio:
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at HighlightStory.

About the author

Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at HighlightStory

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