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Payment of Gratuity

Tushar Mahendru (Learner) (125 Points)

25 February 2010

Hi Frnds,

As per Sec 7 of Payment of Gratuity Act 1972 says that maximum amount pf Gratuity that can be paid is Rs. 3,50,000 and also prescribes the method of calculation of gratuity to be paid.

Now if as per the method prescribed the gratuity to be paid comes out to be Rs. 4,00,000 then what amount can be paid 3,50,000 or 4,00,000?

Pls let m know what is rhe maximum amount of gratuity that can be paid by an entity to which payment of gratuity act applies?

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17 Replies

(Guest)

As per Gratuity Act Rs.350,000/- is the max value hence Rs. 350,000 should be paid.

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 25 February 2010

What???

Buddy, gratuity can be paid in crores even... The limit u stated is for TAX purpose and for the payment purpose

Tushar Mahendru (Learner) (125 Points)
Replied 25 February 2010

Dhruv,

even i'm confused.

Just refer to to Sec 7 of payment of gratuity act.

Limits for exemption under I.Tax act have been picked from Payment of Gratuity Act only.

saranraj (CA FINAL) (419 Points)
Replied 25 February 2010

MINIMUM AND MAXIMUM AMOUNT HAS BEEN SET, BASED UPON THE RIGHTS OF EMPLOYEES FOR CLAIMING GRATUITY. IF A COMPANY PAYS LESSER THAN MINIMUM LEVEL, EMPLOYEES CAN SUE THE ORGANISATION AS PER THE PAYMENT OF GRATUITIES ACT. IN THE SAME WAY, AN EMPLOYEE CANNOT DEMAND MORE THAN Rs.3,50,000 FROM THE ORGANISATION. THE EMPLOYEE DOES NOT HAVE RIGHT TO CLAIM MORE THAN Rs.3,50,000.

Zaid Razvi (Article Assistant) (61 Points)
Replied 25 February 2010

Dear Firends,

Gratuity can be paid in crores as stated by Dhruv but the company can claim it as an expenses only to a limit of Rs3,50,000/ employee

CA Manikandan Raghunath ( ) (609 Points)
Replied 25 February 2010

Agree with Zaid Razvi

The maximum amount prescribed under gratuity act is the amount which the company can claim as expense.

saranraj (CA FINAL) (419 Points)
Replied 25 February 2010

MR. RAZVI AND MR. MRM,

IT IS NOWHERE SAID THAT COMPANY CANNOT CLAIM MORE THAN RS.350000 PER EMPLOYEE TOWARDS GRATUITY. DO ANYONE HAVE A VALID PROOF WITH REGARD TO THIS? IN WHICH ACT AND WHICH SECTION IT IS DISALLOWED IF PAYMENT TOWARDS GRATUITY IS MADE MORE THAN RS.350000?

R.S A R A N R A J
B.COM, IDA

varun (Article Assistant) (31 Points)
Replied 25 February 2010

Hey..

The maximum amt of gratuity that can be paid in a financial year is 3,50,000/-.

The formula use to calculate is:

LAST DRAWN SALARY * 15/26 * COMPLETED YEARS OF SERVICES..

Arindam Naha (Learner) (28 Points)
Replied 26 February 2010

hi..

maximum exemption allowed on gratuity is Rs.3,50,000. but u can receive much more than that depending on the total years of service with the employer.

ROHAN (Chartered Accountant) (25 Points)
Replied 26 February 2010

THERE IS NO ANY RESTRICTION ON PAYMENT OF GRATUITY,

350,000 WAS AN EXEMPTION AMOUNT FOR GRATUITY,

AND NOW THE LIMIT INCREASED TO RS.10,00,000 FROM 350,000 FOR EXEMPTION FOR GRATUITY.

Tushar Mahendru (Learner) (125 Points)
Replied 26 February 2010

Rohan,

Can u pls give the reference of any amendment or any section from where i can read the txt for increase in Gratuity from Rs. 3,50,000 to Rs. 10,00,000.

Kamal Prasoon (Manager, HR & Admin) (25 Points)
Replied 26 February 2010

Gratuity Act does not limit the maximum amount that a person can receive in the form of gratuity.

Payment of Gratuity Act 1972 Sec. 4 (5). It says that employer can cap his liability to a maximum of Rs. 3.5 lakh per employee but nothing in the law prohibits him to provide better benefit than the one mentioned.

There are companies who pay gratuity without cap i.e. an employee can accumulate gratuity as long as he work, even if he crosses 3.5 lakh limit.

Thanks
Kamal

swati (Unemployed) (300 Points)
Replied 21 March 2010

is this statement correct ?????

Maximum gratuity payable is Rs 3.50 lakhs for non government employees and 10 Lakh for Government employees. [Section 4(3)] [Of course, employer can pay more. Employee has also right to get more if obtainable under an award or contract with employer, as made clear in section 4(5)].

Read more: https://www.taxguru.in/income-tax/tax-treatment-of-gratuity-under-the-income-tax-act-1961.html#ixzz0ipCClwyM

Kamal Prasoon (Manager, HR & Admin) (25 Points)
Replied 21 March 2010

Swati,

The statement given is 100% correct.

Award means a decision or judgement of a govt./legal authority. All employers/employees are bound to follow the decision or judgement of a govt./legal authority or appeal against the said judgement at some higher level. If a judgement is to give more than 3.5 Lacs then employer has to fulfill the same.

As far as contract is concerned, any clause mentioned in the contract, i.e, the agreement between the employer & the employee is to be honoured by both the parties. If gratuity amount is mentioned more than 3.5 lacs in the contract the employee has every right to claim that.

So in both the above mentioned cases employee has the right to get more if obtainable under an award or contract with employer.

But now (5th March 2010) )the govt has amended the Gratuity Act to raise the ceiling from Rs 3.5 lakh to Rs 10 lakh.

Thanks

Kamal