Gratuity
What is Gratuity: –
 |
Eligibility Criteria for Gratuity.
Employees are eligible to receive the
Gratuity in the following cases.
1. The Employee should be retired from service
2. The Employee Should be eligible for superannuation
3. The employee should have completed 5 years of service before resigning.
4. If the Employee passes away or suffers disability due to illness or accident.
How the Gratuity is calculated –
under the Payment of Gratuity Act, 1972. Under this act, those employees who are working in establishments employing 10 or more Employees are covered. Other employees, who are working in smaller establishments having employees less than 10, are not covered under this act.
Gratuity calculation formula
If it is 7 Years and 5 months. The number of service years is taken as 8 Years.
Category 2:- For Employees who are not covered under this act.
The formula is slightly different. Number of working days are 30 instead of 26. The rest of the parameters are the same.
Gratuity = Last Drawn Salary x (15 ÷ 30) x Number of years of Service
Suppose Mr Ramesh has worked in INFOSYS for 10 years. And his last basic salary is 90,000=00. Now he has retired from service. We want to calculate the Gratuity amount of Mr. Ramesh. INFOSYS is a big
company having many employees. So, the Gratuity calculation of Mr. Ramesh will be calculated as per category 1.
And below formula will be applicable.
Gratuity = Last Drawn Salary x (15 ÷ 26) x Number of years of Service
Gratuity = 90,000=00 x (15 ÷ 26) x 10
Gratuity = Rs. 5,18,400=00
In the Case of Death of an Employee, the following rules in the charts will be applicable.
|
Employment |
Gratuity
|
| Less than 1 Year
|
Two times the Employee’s Basic Salary |
| More than 1 year but less than 5 Years | Six times the Employee’s Basic Salary |
| More than 5 Years but less than 11 Years | Twelve times the Employee’s Basic Salary |
| More than 11 Years but less than 20 Years | Twenty times the Employee’s Basic Salary |
| 20 Years or More | Half the basic salary for each completed Six months (Subject to a maximum of 22 times the employee’s basic salary ) |
Is Gratuity Taxable?
1. If the Employee receives Gratuity during his service, it is fully Taxable as Income in his hand under the Income Tax Act 1961.
If Gratuity is received after the death, retirement, or resignation, the Tax Exemption is provided as below.
1. Gratuity given to employees working in Government Sectors are fully exempted from Income Tax.
2. For Private Sector Employees working in an Organization that is covered under the Payment of Gratuity Act, 1972 (i.e. Employee Number 10 or More), then Gratuity Amount of up to 20 Lakhs is exempted from Income Tax.
3. For Private Sector Employees working in an Organization that is not covered under the Payment of Gratuity Act, 1972 (i.e. Employee Number less than 10), then a Gratuity Amount of up to 10 Lakhs is exempted from Income Tax.
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