If an employee’s gratuity entitlement is ₹40 lakh but the company pays only ₹20 lakh, is this legally, correct?

​The company’s payment of only ₹20 lakh (instead of the calculated ₹40 lakh) is legally valid under the Payment of Gratuity Act, 1972, because:

Statutory Limit (Section 4(3))

• The maximum gratuity payable under the Act is ₹20 lakh (as per Govt. Notification S.O. 1420(E), dated 29.03.2018).
• The company is not legally obligated to pay anything beyond this limit under the Act.
• Tax Exemption Limit
• The first ₹20 lakh is tax-free under Section 10(10)(ii) of the Income Tax Act.
• Any amount above ₹20 lakh (if paid) is taxable and depends on the employer’s discretion.

Higher Gratuity Possible Only if Contractually Agreed

• If the employment contract or company policy explicitly guarantees gratuity as per the full calculation (₹40 lakh), the employee can legally claim the balance.
• If no such agreement exists, the company is not bound to pay beyond ₹20 lakh.

​Conclusion:
Yes, the company’s payment is legally correct unless a separate agreement mandates higher gratuity.

---

Shekar Ganagaluru's Books

---

---

K. VITTALA RAO's HR Books