No gratuity payment for services below 5 years! New rule coming soon; Check your eligibility

New gratuity payment rules are likely to suggest that an employee will be eligible for gratuity payments only after he or she has rendered continuous service for not less than five years —  on his superannuation, or on his retirement or resignation; or on his death or disablement due to accident or disease; or on termination of his contract period under fixed-term employment; or on the happening of any such event as may be notified by the Central Government.  The Modi Government may make a new Gratuity Payment Rule. the Government will make this rule under the Social Security Code 2019, with its special mention in the Chapter-V and various terms and conditions when the gratuity payments would become applicable to an employee.

According the Social Security Code 2019 tabled in the Lok Sabha, "Gratuity shall be payable to an employee on the termination of his (or her) employment after he (or she) has rendered continuous service for not less than five years...... provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement or expiration of fixed-term employment or happening of any such event as may be notified by the Central Government."

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Exemption from five-year clause

The Chapter-V of the Social Security Code 2019 tabled in the Lok Sabha states that the five years clause of gratuity payment is not applicable in case of termination of the employment of any employee is due to death or disablement or expiration of fixed-term employment or happening of any such event as may be notified by the Central Government. It further states that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the competent authority as may be notified by the appropriate Government who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed by the appropriate Government, until such minor attains majority.

Gratuity Calculation

For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages or such number of days as may be notified by the Central Government, based on the rate of wages last drawn by the employee concerned.

So, the 15 days wages = Last drawn monthly wages ÷ 26 x 15

Income tax exemption

On gratuity payments up to Rs 20 lakh is income tax exempted. However, in the case of more than Rs 20 lakh, one will have to pay the income tax.