How to claim gratuity after resigning: Process and documentation

If a company, be it in the public or private sector, has 10 or more employees working in its organisation, it must pay gratuity to its employees

Resigning from a job is a significant life decision that often comes with many considerations, including claiming gratuity. A gratuity is a form of financial security and appreciation employers provide to their long-serving employees upon retirement or resignation. Gratuity is payable under the payment of the Gratuity Act, 1972.  Let us understand how to claim gratuity after resignation. 

 

Eligibility 

 

If you have completed at least 5 years of continuous service with your employer you are eligible for gratuity. However, the condition is not applicable in situations like the death or disablement of an employee. 

 

Process to claim gratuity
 

 

Initiating the claim
 

The process begins when an eligible employee makes a formal request to claim gratuity. This can be done by submitting an application in Form I to the employer. If the employee is unable to submit the form, their nominee or legal heir can do so.
 

Employer's responsibility
 

Upon receiving the application, the employer is required to verify the claim. The employer must acknowledge receipt of the application and then calculate the gratuity amount payable to the employee. This should be done promptly to avoid any delays in disbursement.
 

How to calculate the gratuity amount 

 

Use the formula: Gratuity = (Last drawn salary × 15/26) × Number of years of service. For example, if your last drawn salary was ~30,000 and you worked for 15 years, your gratuity would be: 15 × 30,000 × 15/26 = ~259,615.

 Note: The last drawn salary includes basic pay, dearness allowance, and any commission earned.
 

Payment timeline
 

According to the Payment of Gratuity Act, 1972, the employer must pay the gratuity amount within 30 days from the date it becomes payable. If the employer fails to pay within this period, it is liable to pay interest on the amount from the due date until the payment date.
 

Dispute resolution
 

In cases where there is a dispute regarding the amount of gratuity or the eligibility of the employee, the matter can be taken up with the controlling authority under the Act. The employee can submit an application in Form N to the controlling authority of the respective region.
 

Appeal process
 

If either party is dissatisfied with the decision of the controlling authority, they can file an appeal within 60 days of the decision. The appeal can be made to the appropriate appellate authority.
 

Necessary documentation
 

When claiming gratuity, employees or their nominees need to provide:

A duly filled application form (Form I for employees, Form J or Form K for nominees/legal heirs).

A copy of the employee’s service certificate or proof of employment

Proof of the last drawn salary

Death certificate in case of death of the employee
 

Tax implications
 

Gratuity received by employees is subject to taxation under the Income Tax Act, 1961.However, the amount received up to ~20 lakh is exempt from tax for employees who are covered under the payment of gratuity Act. For employees not covered under the Act, the exemption limit is calculated based on the provisions of the Income Tax Act.