Gratuity now tax free up to Rs 20 lakh, but are employers right in counting it as CTC?

The Modi government on Thursday notified doubling of the limit of tax-free gratuity to Rs 20 lakh in the private sector. While a large number of private sector employees have welcomed this development, some feel that gratuity should not be part of one’s salary and be given separately as not all employees are able to avail this benefit. That is because only those employees, who complete at least 5 years in an organisation, are entitled to gratuity, while those who change their jobs before 5 years are not able to make any use of it. And if it is part of one’s salary and is deducted from one’s salary every month, then it a loss for employees changing jobs frequently while the organisations deducting it get benefited.
Another argument is that despite their willingness to change their jobs, many employees are reluctant to do so before 5 years because of the fear of losing on gratuity. Therefore, gratuity being part of one’s salary doesn’t make any sense and, in fact, locks up an employee. If it is given or invested separately, irrespective of one’s years of service, that will be more beneficial for an employee.
Surprisingly, while gratuity is part of salary (CTC) in some organisations, in others that is not the case and is contributed by the company. This explains why even experts have different views on this.
“Gratuity isn’t part of CTC and in my view, it shouldn’t be considered part of CTC as it is neither payable monthly or annually. An employee who completes 4 years and 240 days of continuous service becomes eligible for it. Many organisations, however, have started adding this as a monthly component to make the compensation structure look more attractive to a prospective candidate,” says Rituparna Chakraborty, Co-Founder & Executive Vice President, TeamLease Services Ltd.
Source: Financial Express

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