Gratuity

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This discussion clarifies how gratuity, typically 4.81% of basic pay, is handled by companies. While some include it in your Cost to Company (CTC), many do not deduct it directly from your take-home pay. If gratuity is part of your CTC and the company withholds funds, you generally only receive the accumulated amount after completing five years of service. Leaving before five years usually means forfeiting the accumulated gratuity, regardless of whether it was notionally included in your CTC, as it's not an 'ex-gratia' payment in such cases.

S Mahesh

S Mahesh (Querist)
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21 October 2020 I understand that gratuity is 4.81% of the basic pay.
But some firms include it in the ctc, while many do not.

Suppose it is included in the ctc, and say company is witholding 3000 Rs. /month from my take home, then if I leave after 5 years, I will get the entire accumulated money, I understand that

But Suppose gratuity is included in the ctc, and say company is witholding 3000 Rs. /month from my take home, then if I leave after 3 years i.e before 5 years, in this circumstance, can I be eligible to claim the entire accumulated Gratuity which has accumulated for 3 years as ex-gratia.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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21 October 2020 Not eligible to claim in case of less than 5 years service. For more than 5 years only gratuity can be paid as per gratuity act.

S Mahesh

S Mahesh (Querist)
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21 October 2020 so basically companies which are deducting gratuity out of the CTC (i.e by including it within CTC) are indirectly creating a BOND type of situation. A bond agreement which says "every month I will deduce xxxx from your take home, and if you leave before 5 years, you lose all the accumulated money"..

but what about EX-GRATIA payment...if company doesnt withold gratuity from CTC and employee leaves within 5years, ok no payment nothing lost, nothing gained

but I read somewhere that in cases where "company is deducting money from CTC" to add to the "gratuity pot".........such companies must pay the accumulated money out when the employee quits before 5 years. is this true

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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21 October 2020 It's not true. Gratuity will be taken for the purpose of CTC but payable only when 5 years service is completed.

S Mahesh

S Mahesh (Querist)
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21 October 2020 So that means this is like an indirect tactic of companies to withdold gratuity money, thereby indirectly telling employees, ïf you leave before 5 years, you are losing all that money

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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22 October 2020 No, that is not correct. That's the practice followed by all the companies. Unless 5 years of service is not completed no gratuity will be paid.

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