Gratuity is a statutory benefit provided by an employer to employees as a token of appreciation for their long-term service. In India, it is governed by the Payment of Gratuity Act, 1972, which applies to establishments with 10 or more employees. Gratuity becomes payable when an employee retires, resigns after completing at least five years of continuous service, or in cases of death or disablement.
The amount of gratuity is usually calculated based on the employee’s last drawn salary and the number of years served. It acts as a financial security for employees post-employment and encourages employee retention by rewarding loyalty.
For small business owners and entrepreneurs, understanding gratuity is essential for compliance and proper financial planning. Employers must ensure timely payment of gratuity and maintain necessary records, as failure to comply can lead to penalties. Gratuity payments also have tax implications, where certain limits of gratuity received are exempt from income tax under Indian tax laws.
To manage gratuity-related compliance effectively, including accurate calculation and timely filing, businesses can benefit from professional guidance and digital solutions. For comprehensive support on income tax and related matters, visit FinTax24 Income Tax Solutions.