New Policy on Gratuities: Employers can show their appreciation for their employees’ work by giving them a lump sum known as a gratuity. Certain guidelines are mandated by the 1972-passed new gratuity policy. On August 21, the act was approved by Parliament, and it took effect on September 16 of the same year. This act applies to the defense and local governing bodies, as well as all departments of the central, state, and local governments. It is possible for private businesses to fall under its jurisdiction provided that certain requirements are met. It is a financial reward given to an employee as a way to thank him for his service and loyalty to the company.
What Is The Standard Of Tip?
Gratuities must be used in accordance with the following guidelines:
Companies that have ten or more employees on a single day in the previous year are required to pay a gratuity. Even if a company has fewer than ten employees, it is still required to pay the gratuity under the new policy.
As far as we are aware, this act covers the calculation of bonuses for businesses with ten employees on a given day during the preceding year.
There will be no other portion of the last drawn salary included; It only includes the dearness allowance and the basic salary (DA).
Any year in which an employee worked for more than six months is considered a completed year of service.
Gratuity Can Be Given Prior to Retirement In most cases, gratuities are given after retirement; however, there are some situations in which they may be given prior to retirement. The following are examples:
When switching jobs, one can ask for a gratuity after five years of service.
If an employee dies on the job, the gratuity will be paid to the nominee or legal heir.
Gratuity is due when an employee is disabled as a result of an illness or accident.
A new gratuity policy is available to an employee who chose VRS.
Although an employee is entitled to a gratuity even after their employment period has ended, they will not be entitled to one if they are fired for misconduct such as fraud, theft, assault, rape, or molestation.
A Gratuity Given to an Employee’s Widow or Other Designated Legal Heir or Widow Will Not Be Taxed When an employee dies, the gratuity given to his wife or other designated legal heir will not be taxed. In the event of death, the duration of the employee’s employment is used to calculate the gratuity benefits. However, the sum cannot exceed 20 lakh rupees.
Article 10(10) of the Income Tax Act exempts all gratuities paid to government employees—with the exception of statutory businesses—from taxation up to 20 lakh.
Gratuities paid by organizations covered by the Payment of Gratuity Act, 1972 are exempt from taxation under the Gratuity Rules 2021 up to a total of 20 lakh. Additionally, central, state, and local government gratuities are not subject to taxation.
Even if a company files for bankruptcy, it is still required to provide employees with gratuities, and no court ruling can prevent an employee from receiving them. Employers cannot refuse to do so. The new gratuity policy for 2023, on the other hand, is different from the previous one.
Know about: Is gratuity fully exempted from tax?
The following sections provide an explanation of the situations in which employees are entitled to gratuities.
- When an employee retires, they can receive their gratuity after five years of continuous service in the relevant organization.
- An employee suffers a fatality, illness, accident, etc.
- To be eligible for superannuation, an arrangement in which employees deposit money that grows tax-free until retirement or withdrawal, an employee must be qualified.
What is the 1972 New Gratuity Payment Policy?
Companies are required by the Indian Gratuity Act of 1972 to provide a one-time gratuity to retired workers.
This applies to all businesses, including oil and gas fields, factories, ports, mines, and railways. According to Section 4 of the Payment of Gratuity Act of 1972, employees who meet the definition of an “employee” in Section 2(E) are eligible to receive the gratuity.
The employee’s service must have lasted more than six months or a year, and the gratuity is equivalent to 15 days’ pay per year.
The primary objective of enforcing this law is to provide employees with social and financial security upon retirement. The amount of the gratuity is determined by the number of years of service and the most recent income.
The new payment procedures for the gratuity policy are as follows:
- A request for a gratuity should be made to an employer by an employee or an authorized individual.
- The applicant and the controlling authority are informed of the company’s determination of the gratuity amount.
- The applicant’s gratuity must be paid by the employer within 30 days.
New Rules for Gratuity in 2023
The new labor law went into effect for all businesses and organizations on July 1, 2022. In accordance with the new labor law, working hours, the Provident Fund (PF), and the in-hand salary were reduced. Take-home pay will be most affected by this law.
Employers must ensure that base pay accounts for 50% of an employee’s CTC (cost to the company) and that the remaining 50% is made up of overtime, housing costs, and employee allowances under the new gratuity policy for 2023. Additionally, any additional allowances or exemptions paid by the business that exceed 50% of the CTC will be considered compensation.
The law limits the maximum basic pay to 50% of CTC in the new gratuity policy for 2023, which will raise the gratuity bonus that must be given to employees. The amount of the gratuity will be based on a substantial base salary that includes basic pay and allowances.
Employees are compensated when they perform overtime, such as working for more than 15 minutes.
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