Gratuity is a post-retirement benefit paid to employees who have finished a certain number of years of service. While gratuity is now payable in all private and public organisations with more than 10 employees, it was mainly for people engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and such segments. Now almost all good organizations give the benefit of gratuity to employees. Let us see how you can check your eligibility and the benefits of gratuity.
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Eligibility for Gratuity
Gratuity is paid to an employee when his employment is terminated, and he has rendered continuous service for not less than five years. Other conditions when you are eligible for gratuity are –
(a) On your superannuation on reaching the predetermined age
(b) On your retirement (before the predetermined age) or resignation,
(c) On your death or disablement due to accident or disease
In case of death or disablement, the five year condition is waived off, and gratuity is payable to your nominee. In case there is no nomination, then legal heirs are eligible to receive this amount. If the legal heir is a minor then the controlling authority of Gratuity will invest such amount in a bank or financial institution for the purpose of safekeeping and multiplying and will pass it on when he/she comes of age.
Disablement clause is applicable when the employee is unable to perform a service or skill (due to an injury), which he could do before the accident.
Calculation of Gratuity
For every additional year you complete in excess of six months as an employee, you will be eligible to receive gratuity at the rate of 15 days based on the rate of salary last drawn by the employee. In the case of an employee receiving a monthly salary, the fifteen days salary is determined by calculating as follows –
Divide the monthly rate of salary last drawn by the employee by twenty-six and multiply the quotient by fifteen.
Gratuity = N*S*(15/26)
Where N = term of service completed in the company
S = last drawn basic salary + dearness allowance
Also, this amount of gratuity payable to an employee should not exceed Rs. 3,50,000.
Efficient utilization of Gratuity amount
While you receive this amount post-retirement, investing it in the best possible way is the key to maximizing returns from it. This is a large investment of money that can be used as a deposit in highly lucrative company fixed deposits. If you are on the search for the Best Investment Option, you can consider Bajaj Finance fixed deposits(FD), which gives a starting interest rate of 8.35% for new investors. With the assurance of a trusted brand along with credit stability vetted by leading credit agencies like CRISIL and ICRA, this fixed deposit provides an additional rate of 0.35% to senior citizens.
Gratuity amount can be invested as a lump sum. However, to avoid TDS (Tax Deduction at Source), you need to ensure that the interest amount doesn’t exceed Rs 5,000 in a financial year. You can break the lump sum amount into a number of FDs with varying tenors by using the multi deposit facility offered by Bajaj Finance. This will not only help you save TDS on interest earned but also ensure a continuous stream of returns.