Gratuity Plan
- ABSLI Gratuity Scheme
- Why You Should Invest in Gratuity Scheme?
The principle aim of gratuity is to ensure that an employee receives adequate benefits at the time of his/her exit from the service so that he/she doesn’t have to face any financial turmoil in the near future. By investing in a gratuity scheme, you can ensure that you have adequate funds ready with you to pay this benefit to your employees as and when the need arises.
Investing in gratuity can be considered as a business expense
Aids in systematic funding of your liabilities
Keeps your cash-flow smooth
Reduces Tax liability*
Tips to Select a Gratuity Scheme
01. Portfolio Quality
A gratuity Scheme allows you to invest in top-quality funds so that you can gain maximum returns on your investments. With ABSLI’s gratuity Scheme, you’ll have multiple investment options to choose from, as per your risk appetite and investment horizon.
02. Diversified Portfolio
You will be able to create a diversified investment portfolio to ensure the right blend of high returns and capital preservation. ABSLI’s ULIP plans provide diversified portfolios with optimum return averaging.
03. Inflation Beating Returns
Look out for a gratuity scheme which invests in funds which have the capability to provide inflation-beating returns.
04. Flexibility
Opt for a plan which offers flexibility in choosing the schemes for your investment. With ABSLI, you can choose to invest in traditional as well as unit-linked gratuity Scheme as per your needs.
Table of Content
What is Gratuity?
Gratuity is a one-time remuneration or monetary benefit paid to you by your employer for your services to the company. The gratuity period in India is 5 years. It means you must be employed with a company continuously for a minimum duration of 5 years to enjoy the benefits of gratuity.
While the contributions to your gratuity account are made every month during your service, you receive their benefit as a lump sum amount upon retirement.
What are Gratuity Eligibility Criteria Before and After Completion of 5 Years?
Under usual circumstances, you become eligible for the gratuity after 5 years of continuous service with an employer. However, under a few circumstances, you can become eligible for the benefit before 5 years too. Let us have a look at the gratuity criteria in detail:
- You must be eligible for your company’s superannuation benefit or their pension program
- You must have retired from service.
- The gratuity minimum period is 5 years of continuous service with the employer.
- However, you become eligible for the gratuity benefit if you are diagnosed with a critical illness or suffer disability due to an accident.
- In the event of an employee’s untimely death, their family can claim gratuity before the 5-year period.
What is the Maximum Limit for Gratuity Provision?
The gratuity rules and regulations state that the maximum amount you can receive as a gratuity benefit from your employer cannot exceed ₹20 lakhs. You can receive this amount at the time of retirement, upon legal termination from service, or as an accidental/illness/death benefit.
Can I Receive a Gratuity Before 5 Years?
Employees who plan to switch jobs after working in a company for 4 to 4.5 years are often confused if they are eligible for gratuity or not.
As explained above, you cannot receive gratuity benefits from your employer unless you have been employed with them continuously for at least 5 years, except for certain situations.
What Does 5 Years of Continuous Service Mean?
Since continuous service is one of the most essential criteria for a gratuity benefit, it is necessary to understand what it means.
A continuous service of a minimum of 5 years means that you have been employed uninterruptedly with an employer for at least 5 years. If you resigned from the job and rejoined after a period, or if the company terminated you and re-hired you after a duration, it will not be considered as continuous employment even if the total work tenure exceeds 5 years
Recent Changes in the Gratuity Act - Gratuity Before 5 Years
According to the recent changes in the Gratuity Act, journalists can avail of the gratuity benefit if they resign after 3 years of continuous service instead of the usual 5-year period.
Moreover, the base pay for an employee should be 50% of an employee’s CTC, and the remaining 50% is made up of various employee allowances.
This change will contribute to increasing the gratuity incentive that can be availed by employees. The gratuity amount is to be calculated using the basic salary and the alliances for an employee.
How to Calculate Gratuity?
The formula for gratuity calculation is as follows:
Gratuity = N * B * 15/26
Here:
N = The number of years for which you have been employed with the company
B = Your last received basic salary + dearness allowance
Note that figure 15 signifies wages for 15 days, and figure 26 accounts for the usual monthly working days, excluding the 4 Sundays.
For example,
Mr. A worked for a company for 20 years, and his basic salary + dearness allowance was ₹50,000 per month. In this case, the gratuity amount he is eligible to receive is:
20 * 50,000 * 15/20 = ₹7,50,000
Relevance of Gratuity for Income Tax E-Filing
During income tax e-filing, you can avail of tax benefits on the gratuity amount you receive.
- If you are a public sector employee (except statutory corporations), the gratuity amount you receive is entirely tax-free.
- For other employees, the least of the following amounts is tax exempted for gratuity payments:
– ₹20 lakhs
– The actual gratuity amount you received.
– The gratuity amount you are eligible to receive.
Final Words
Gratuity is a monetary reward or recognition you receive from your employer for providing service to the company. Under normal circumstances, you must be employed with your company for a minimum of 5 years continuously to enjoy this benefit. However, there can be exceptional cases where employees or their nominees can receive the benefit before the end of the 5-year period, too.
Frequently Asked Questions
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