Yes, NPS (National Pension System) employees are eligible for gratuity, but the rules depend on the type of employment and the specific terms of the employer's policy.
Here’s how gratuity and NPS are generally related:
1. Gratuity for Government Employees (Under NPS)
For government employees, especially those in the Central Government and State Government, the eligibility for gratuity is governed by the Payment of Gratuity Act, 1972. Under this Act, a government employee is entitled to gratuity if they have completed 5 or more years of continuous service.
For Government Employees: Even though these employees are covered by the NPS, they are still eligible for gratuity as per the provisions of the Payment of Gratuity Act.
Gratuity Calculation: The amount is calculated based on the employee's last drawn salary and the number of years of service. The formula is: Gratuity=(Last drawn salary×Number of years of service)×1526\text{Gratuity} = \text{(Last drawn salary} \times \text{Number of years of service)} \times \frac{15}{26} Here, 15 is the number of days' salary for each completed year of service, and 26 is the number of working days in a month.
2. Gratuity for Private Sector Employees (Under NPS)
In the private sector, if the employee is part of the NPS, their gratuity eligibility would be governed by the Payment of Gratuity Act, which applies to establishments with more than 10 employees. If an employee has completed at least 5 years of continuous service with a private company, they are eligible for gratuity.
NPS vs Gratuity: Employees contributing to NPS in the private sector will receive the benefits of NPS at retirement, which is a pension scheme, but it does not replace the employee's entitlement to gratuity. They are still entitled to gratuity if the organization is covered under the Gratuity Act.
3. Impact of NPS on Gratuity
Separate Schemes: NPS and gratuity are two separate schemes, and their benefits are distinct.
NPS: Primarily for building a retirement corpus and providing pension post-retirement.
Gratuity: A one-time payment received when an employee leaves the company after serving for 5 or more years.
No Overlap: The contribution to NPS does not affect the gratuity calculation. Gratuity is generally calculated based on the employee's salary and years of service, whereas NPS builds the employee’s retirement corpus.
4. Employees Not Covered by the Gratuity Act
There are some employees who may not be eligible for gratuity:
Employees in establishments with fewer than 10 employees (which do not fall under the Gratuity Act).
Employees in temporary or contractual positions who have not completed 5 years of service.
However, those who are eligible for gratuity are entitled to the benefits even if they are also contributing to NPS.
Conclusion
Government Employees: Eligible for both gratuity under the Payment of Gratuity Act and NPS benefits.
Private Sector Employees: Eligible for gratuity (if the company has more than 10 employees) and can also participate in NPS, but these are separate benefits.
In summary, NPS employees are eligible for gratuity as long as they meet the eligibility criteria of the Payment of Gratuity Act (i.e., 5 years of continuous service).
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