Gratuity Policy of 2022

An Overview of the New Gratuity Policy of 2022

Online Legal India LogoBy Online Legal India Published On 15 Nov 2022 Updated On 06 Jan 2023 Category Legal

As per the Act of the Payment of Gratuity of 1972, gratuity is the amount of money that a worker earns from his employer. An employer may pay a gratuity to an employee as a thank you for his service to the firm. Gratuity is one of the components that an employee's gross remuneration includes. However, an employee is only entitled to gratuity payments after 5 years of service with the company.

The Payment Gratuity Act of 1972

Every year of service entitles an employee to 15 days' wages as a gratuity. As part of the gratuity for each year of service, the company must pay a sum equal to 15 days of the employee's most recent wage. Salary in this context refers to the total basic earnings and dearness allowance. Furthermore, an employee receiving gratuity payments of up to Rs. 20 lakhs is exempt from paying tax on the amount received as part of the gratuity. Furthermore, this regulation only applies to firms with a minimum of ten employees.

New Gratuity Policy in 2022

The new Gratuity Policy went into effect for all firms and organisations on July 1, 2022. In compliance with the new labour legislation, working hours, Provident Fund, and in-hand salary were reduced. This policy will have the greatest impact on take-home pay.

Employers must ensure that base pay accounts for 50% of an employee's CTC (cost to the firm) and that the remaining 50% is made up of overtime, housing costs, and employee allowances under the new gratuity policy for 2022. Furthermore, any extra allowances or exemptions paid by the employer that exceed 50% of the CTC would be considered payment.

The new gratuity policy for 2022 standards limits the maximum basic pay to 50% of CTC, increasing the gratuity incentive that must be offered to employees. The gratuity amount will be calculated using a big salary base that includes both basic pay and allowances. In addition, employees are compensated for working 15 minutes or more overtime.

Essential Gratuity Payment Rules

Employers are required to observe specific gratuity payment standards. Among the regulations governing gratuity payments are the following:

  • The first gratuity payment regulation states that an entity can only make gratuity payments if it has 10 or more employees in the previous 12 months. However, if the number of employees falls below 10, the company must pay gratuity in accordance with the Gratuity Act.
  • To be eligible for a gratuity payout, an employee must have completed 5 years of continuous service with the firm. This gratuity payment provision, however, does not apply in the event of an employee's death or disability.
  • Gratuity payments can be made upon an employee's retirement, death, resignation, termination of work, disablement due to an illness or an accident, lay-off due to retrenchment, or if the employee opts for VRS, according to the rules.
  • Last but not least, gratuity calculation in India is based on an employee's most recent withdrawn income as well as his years of service in the firm.

Calculation of Gratuity is covered under this Act

Companies with ten employees per day in the last 12 months, as we know, are covered by this statute.

Gratuity = (15th drawn pay divided by the number of completed years of service)/26

  • The latest received wage includes only the basic & dearness allowance (DA), with no extra components.
  • Completed years of service include any year in which an employee worked for more than six months.

Gratuity Paid can be Paid before Retirement

Gratuity is often paid after retirement; however, it is available under specific situations, such as

  • After five years of service in the organisation, one can request a gratuity upon changing positions.
  • If an employee dies while on the job, the nominee or legal heir is given the gratuity.
  • An employee is entitled to a gratuity if he becomes disabled as a result of an accident or sickness.
  • If an employee has chosen VRS, he is entitled to a gratuity.
  • Gratuity is due to an employee even if his job is terminated, although it cannot be claimed in cases of termination of employment, fraud, theft, violence, rape, or molestation.

Gratuity Up to Twenty Lakhs is spared from Taxation

Gratuity payments of up to twenty lakhs are exempt from taxation if made by an organisation provided by the Payment of Gratuity Act of 1972, and gratuity payments made by federal, state, and municipal government entities are exempt from taxation under the new gratuity policy 2022.

Gratuity Eligibility in India

  • When an employee has completed five years of continuous service with the firm.
  • When an employee retires, he is eligible to get thanks.
  • An employee dies, becomes ill, or is involved in an accident.
  • An employee should be qualified for superannuation (under this scheme, the employee's money deposited grows tax-free until retirement or withdrawal).

Different types of Gratuity Forms

Form I: Request for Gratuity Payment

Form J: Gratuity payment application for the nominee

Form K: Gratuity payment application for the legal heir

Form F: Nomination nomination application

Form G: Application for a new or renewed nomination

Form H: Nomination modification application

Form L: It is given to the employee by the employer and includes the date and amount of compensation.

Form M: It is given to the employee by the employer and states the reason for the rejection.

Form N: This is an employment application to the Labour Commission.

Form O: It is issued by the relevant authorities in order to attend a case hearing.

Form P: Summons issued by the relevant authorities to appear in court for the purpose of hearing the matter.

Form R: It is issued by the relevant authorities and contains instructions for making the gratuity payment.


In the recent past, new gratuity regulations have been developed. As a result, certain adjustments were made to the statutory framework governing receiving a new gratuity policy in 2022. Retirees are consequently encouraged to visit the government websites to keep current and can also file for PF Registration hassle-free from the comfort of their homes with Online legal India.

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