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Sagar Patel (Assistant Manager - Projects)     10 April 2012

Gratuity is a part of the ctc...???

Hello everyone,

I'd like to get clarity on, "Whether Gratuity is a part of the CTC of an Employee...?"

In other words, Can the Employer Deduct some Amount from the Gross Monthly Salary of an Employee under the tab of Gratuity and Promise to pay the lumpsum amount after Completion of 5 years...???

And, also that in case if the Employee resign his job within 5 years, none of that deducted amount shall be paid to him....!!!

Is there a Revelant case law, that can be referred....?


Many Thanks !!!


 10 Replies

Kumar Doab (FIN)     10 April 2012


Employee is not required to make any or any kind of contribution to gratuity.

Kindly confirm if the employer has been deducting the amount and showing it in salary slip? If yes under which head?

Sagar Patel (Assistant Manager - Projects)     11 April 2012

Mr. Kumar... Thank you for your reply...!!!


It has been deducted under the Tab of "Retirals Company's Contribution To" under 'Gratuity'.

Kumar Doab (FIN)     11 April 2012

Apparently you seem to have a good case. Valuable advice of learned experts/members is sought.

Before you initiate any action, kindly show all records to a competent and experienced service lawyer and draw a strategy. If the company is caught on wrong foot to evade severity of punishment and penalty(ies) company may reply that even if the employee leaves before 5 years the amount collected from employee shall be refunded with interest, however this approach can be termed grossly wrong, illegal.

It entirely depends upon your decision and resolve what do you want to do with this employer. The correct in practices and conduct of this employer shall help many other fellow employees in this company and industry.

You can lodge a complaint with controlling authority which can be ALC/DLC with a copy to O/o labor commissioner.

You may give an opportunity to employer by submitting a gentle communication to good offices of your appointing authority, MD, Company Secretary with a copy to Head-HR, and persist for a reply in writing only even if by email, and may proceed after the reply.

Gratuity is a statutory right of employee whoever completes 5 years in the same organization, and is a terminal benefit.

The cost is to be born by employer and not employee.

Gratuity can not be a part of CTC. If company is making it part of CTC you can agitate before the controlling authority. Or even legal notice from one ( common ) lawyer of all employees to company might be sufficient to drill sense into it and to get the entire payment released.

It may be treated as minor fraud. However you shall be eligible to get the amount even if you have not completed 5 years.

The amount paid by company to Group Gratuity Insurance Scheme is accumulated and LIC pays interest on it. This fund is created so as to meet the payment of gratuity to employees in case of death, disability. If this fund is not created company has to bear the cost from its own resources. Moreover in case of termination/resignation of eligible employee the payment is made from the fund and rest is carried forward and keeps on earning interest. Moreover after 5 years company shall make a payment as per formulae of the gratuity, while if you consider the monthly contributions (shown as part of CTC or collected from employee) the amount shall be more than amount calculated by gratuity formulae.

The companies which make gratuity as part of CTC pay the amount as Tax rebated/Ex. Gracia in FNF settlement even if employee leaves before 5 years ( or 4Y8M/ 6M as the case may be).



1 Like

Sagar Patel (Assistant Manager - Projects)     11 April 2012

Mr. Kumar... Considering your valuable reply... I am hereby attaching the Copy of the Salary Structure for reference purpose.

The Employer and Employee name have been excluded to maintain privacy.


Thank you.

Attached File : 522519162 salary structure.pdf downloaded: 5732 times

Kumar Doab (FIN)     11 April 2012

You had posted"

"It has been deducted under the Tab of "Retirals Company's Contribution To" under 'Gratuity'.

The amount has not been deducted from your monthly payouts.

It has been made part of your CTC. While PF contribution by employer is to be deposited/being deposited in member's (your a/c) every month, is gratuity being deposited in member's a/c? Kindly discuss the matter with your lawyer.

In case you separate before 5 years shall the employer pay this component and if yes how? By gratuity formulae or as monthly contributions compounded with interest? Shall the company pay this amount as Tax rebated/Ex. Gracia, in FNF settlement? Do you have printed version of company policy in this regard?

If the HR shows Gratuity as part of CTC in excel sheet saved in its computer it is fine, as it is their exercise. It must not be part of CTC document given to employee.

Employee should negotiate all aspects of CTC while accepting the offer and must avoid accepting gratuity as part of CTC and must focus on take home. Employee should also ask for other rewards/awards/incentives and must study these carefully and must avoid companies which attach lot of strings to R&R e.g. payment shall be made at the end of calendar/financial year if employee is in employment at the time of disbursement.

Employers are smart. Employee should also be smart.


Manindra Singh (Chief Manager IR)     12 April 2012

The attached document is not the salary slip but annexure to the appointment letter or increment / promotion letter detailing the CTC.

Most of the organisations include employer's share of PF contribution as part of the CTC. However, since eligibility under payment of Gratuity Act is only after completion of 5 years of service, most organisations do not inlude it as part of CTC. However, though it is not correct, certain organisations do include gratuity value in CTC to show higher CTC to the prospective employees and attract them.

Not a fair thing to do on part of the Company, but I do not think  have any case against your employer.

At best, raise this at appropriate level if your company culture permits it.



Kumar Doab (FIN)     12 April 2012

The employer could choose voluntarily to pay  more gratuities; but any extra benefit that he pays, not coming under the formula, will be taxable. For instance, if the employer pays  Rs 350,000, the entire money is not tax exempt; only the Rs 290,000 due under the formula is. The employer could also offer  an extra gratuity by deducting a portion of your salary as the cost to the company. At the time of joining the organization, employee should ask the employer for all the details concerning gratuity and how to calculate it. Hr is duty bound to explain on behalf of good offices. In many of the posts and publications in forums HR personnel have pointed out that gratuity expressed in CTC has been paid out to employees as tax rebated/Ex. Gracia in FNF statement. If you have approached a competent and experienced service lawyer by you must have received opinion. Kindly share it in the forum as it shall help many who visit the forum.

Valuable advice of learned experts/members is sought.

CA Ayush Agrawal (Chartered Accountant)     08 July 2013


eligible only after completing 5 years of services.

Dia (Receptionist)     23 July 2013

Hello. I have a query.

In my organisation, gratuity is shown in CTC but not in Salary Slip. In CTC it is mentioned next to gratuity as 'payable as per Act'.

please guide me to understand pros n cons of above. also adding gratuity in ctc is legal???


Vara Prasad (DEF)     20 February 2014

Dear Sir,

Need an small clarification. My employer shows Gratuity in offer letter and appraisal letter as part of CTC. But in monthly pay slips Gratuity is not shown but deducted from every employee. And the amount deducted is not deposited anywhere. So if I am resigning and leaving company before completion of 5yrs, am I eligible to claim by deducted Gratuity amount from my employer? Please suggest.


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