Understanding Gratuity Payment After an Employees Death: Key Insights and Guidelines

Hello everyone,

I am working in a manufacturing unit, and I have one question. One of our employees died during employment with us, and as per the law, we have to pay him gratuity. My question is whether we have to pay for his completed years of service or for the remaining years of service as well. His total years of employment were 7 years, ending in March 2013.

Please put your efforts into this.

Regards,
Sachin

He will get gratuity for his completed years of service, but if the employer wants to pay more, it's possible to pay under ex gratia payment.

Dear Patel,

Kindly go through Section 4 of the Payment of Gratuity Act, 1972, which defines the terms of payment of gratuity:

Section 4. Payment of Gratuity. -
(1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,
- (a) on his superannuation, or
- (b) on his retirement or resignation,
- (c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:

[Provided further that in the case of the death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs are minor, the share of such minor shall be deposited with the Controlling Authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.]

Explanation: For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

Attribute: http://www.mahashramm.gov.in/maha/ac...y_Act_1972.pdf

Thanks

Dear Sachin,

As per Section 4(2), you have to pay gratuity for 7 years of service only, which are completed years of service. This section states:

"(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the wages last drawn by the employee concerned."

Thanks,
V K Gupta.

Dear,

I appreciate the contents of Mr. Surendra. The only thing I would like to add is that nowadays, some companies have tied up with insurance providers like LIC, ICICI, or any other, who reimburse the payment of gratuity to the nominees of employees after death. In such cases, employers have adopted a formula to pay gratuity for the period of service rendered as well as gratuity for the remaining period of service lost due to death. The whole amount in such cases is reimbursed by the insurance providers who charge some premium every year for such insurance of gratuity cover. You have not mentioned what the practice is in your organization. If no such arrangement has been made, gratuity shall be paid only for the period of rendered service as per provisions of the PG Act.

Best Wishes,

AK Jain HR Personnel NCL, CIL

If your company has taken the policy from LIC, then LIC will give a very good amount even for the remaining period and also for some sum assured. Otherwise, you have to pay only for the period of service he has rendered with you.

Satish Verma
Nashik

Suppose an employee has completed 10 years and expires while employed. His gratuity will be calculated for 10 served years or up to his retirement age, i.e., 58 years. I think gratuity up to 5 lacs is non-taxable. Suppose the gratuity amount for an employee exceeds 5 lacs, will tax be attracted on the excess amount even if he has passed away? Is there any relaxation in cases of death.

Pay the gratuity for the completed years of service unless you have linked with LIC.

There is a limit on the amount of gratuity payable under the Act. If I am not mistaken, this limit is Rs. 3.50 Lac. However, gratuity payable under the Gratuity Act is not taxable.

Thanks,
V K Gupta

Dear Arun Jain,

Yes, we have a tie-up with LIC for gratuity, but we entered into a contract with LIC on 1/4/13, and unfortunately, the employee died on the 31/03/2013. So, for LIC, it should not be covered. We have to pay him gratuity from our side. That is why this question arose in my mind.

Dear Surendra Raj,

I appreciate your effort. As you mentioned, I went through section 4 of the Act, but unfortunately, section 4 does not serve my purpose. I need further clarification on this. Does the employer have to pay gratuity for the remaining years of service or not?

Thank you.

Dear Patel210,

As per my assumption, the employee has died on account of an employment injury. Otherwise, he would have continued in your organization. Though we can't assume how long he would have continued his service until retirement, if he is loyal to the organization. In my opinion, we should consider providing compensation similar to workman's compensation, covering his loss of capacity until his retirement age, considering the early period during his employment.

Anyhow, if your management does this, it may bring some comfort to the bereaved family as the head of the family is missed in their life.

My query regarding the following:

1. Gratuity period calculation in case of death.
2. Taxable gratuity amount is still to be replied.

Dear Mr. HR,

Your queries have been answered in the foregoing threads:

1. Gratuity period calculation in case of death: Period of service rendered. If you have an LIC policy, then as per the policy.

2. Taxable gratuity amount is still to be replied: See Section 10(10)(ii) of the Income Tax Act or consult your CA.

V K Gupta

Dear,

In such a case that your organization has tied up with LIC at a later date, the deceased will be entitled to gratuity for the period of rendered service only. Many followers have mentioned the limit of gratuity as 3.5 lakhs or non-taxable up to 5 lakhs. But sirs, the gratuity limit has been raised to Rs. 10 Lakhs as of now. It is fully non-taxable.

Best wishes to all,

Arun Jain
HR Personnel
NCL, CIL

Dear team,

If any employee completes six months of service next year, then one year will be considered.

Thank you.

Now the limitation has been enhanced to a maximum of 10 Lakh. No tax on this. Mr. Sachin can proceed for the actual completion of services with you.

Regards,
Thilai.

Dear All,

I would like to inform everyone that I have reviewed the Act and consulted with a consultant. Finally, I have received confirmation that organizations are liable to pay gratuity only for the completed years of service. I have followed the guidelines stated in the Act.

I am thankful to everyone for providing their valuable suggestions regarding the above query. I am looking forward to resolving any further queries through this forum.

Thanks again to everyone.

As per the Gratuity Act, you have to pay him from his date of joining until the month of his death.

I have a different view. I think the bill for raising Gratuity ceiling from 3.5 lacs to 10 lacs was already passed in Lok Sabha in the year 2010.

Thanks,
P. Radhakrishnan

Dear Sachin,

The nominee received gratuity and life cover two months before. One of our employees met with an accidental death, and his nominee received both benefits from LIC.