Gratuity

Definition:

Gratuity is the monetary benefit given by the employer to the employees at the time of retirement or when they part away from company.

Description:

Gratuity is the defined benefit plan that is managed by the employer. In 1972, the Government of India enacted the Payment of Gratuity which made it mandatory for the employers to pay the gratuity. Similarly, an employee is eligible to receive payment of gratuity only if he or she fulfils the conditions specified in the Gratuity Act.

The eligibility of an employee to receive gratuity materialises when the individual has worked in an organisation for more than 5 years. There are Gratuity Insurance Schemes that help the employers manage their employees’ gratuity liabilities.

Example:

Bikram worked with HSGC Bank for 7 years. He then thought of changing his job. At the time of leaving the job, the company paid him his gratuity of Rs.7 lakhs. It was an additional benefit that Bikram had earned from the bank.

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ADV/5/22-23/290