Gratuity Act, Meaning, Rules, Eligibility, Calculation & Tax in India
Here in this post, we will discuss Gratuity Act, meaning, its eligibility and how to calculate gratuity and gratuity calculator that every employee should know and enjoy. But before going ahead, let me know you if you have completed 4.5 years in this same organization and are in notice period?
If yes, then I think this post means a lot to you. Please read it mindfully and then rethink your decision.
Very often you get calls from recruitment cell and direct emails to your inbox. Sometimes you ignore, sometimes you entertain them. And at few times, if you are interested, you have your interviews and get selected and finally, join a new company. This process continues, and you keep practicing job hoping and keep changing your employer year after year.
There would be hundreds of valid reasons when you change your job. One such dominating reason is money. But it is worth to give a check to your number of terms with the present organization before making a final move. Sometimes, you might not know and lose a good sum of money, if you could have stayed a few months more in your previous organization.
So the bitter truth, which I guess will shock you, is that switching jobs year after year is neither good for your reputation in industry nor for your pocket.
Yes, we are talking about gratuity. A time-bound, universal benefit given by every employer to its every employee in every organization governed by gratuity act, provided that employee fulfills the required terms and condition. And at the same time, it is very important for you that you should know about gratuity and how gratuity calculator works. It is your right to know what treasure gratuity has inside it.
Well, before we head to gratuity calculator and how to calculate gratuity, let’s first know in brief about gratuity and benefits it holds for you.
Gratuity (meaning in Hindi is उपहार) is the part of the salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job for various reasons, such as – retirement/superannuation, for a better job elsewhere, on being retrenched or by way of voluntary retirement.
Gratuity Act & its applicability
Earlier, it was not compulsory for an employer to reward his employee at the time of his retirement or resignation. But in 1972 the government passed The Payment of Gratuity Act that made it mandatory for employers with more than 10 employees to pay gratuity.
A shop or establishment to which the Act has become application shall continue to be governed by the Act even if the number of person employed falls below 10 at any subsequent stage.
Trainees and interns are not eligible for this compensation.
Gratuity shall be payable to employees:- On his resignation and retirement On his death On his superannuation After he has rendered continuous service for not less than five years Note: However, the condition of five years of continuous service is not necessary if service is terminated due to death or disablement. If an employee with more than five years of experience in a company is terminated due to misconduct followed by legal action on him then he is no more eligible for gratuity.
Calculation of Gratuity: Gratuity Calculator
Gratuity is one of the least understood components of salary Formula to calculate gratuity
Gratuity=Last Basic+ DA*15/26*No. of years
Gratuity in India
After 5 years of completion, six months or less to be ignored and more than six months to be counted as a full year.
For 5 year 1 month to 5 months, takes 5 years
For 5 year 6 month to 11 months, takes 6 years
Below we have illustrated it further with an example:
Date of joining of X is 01. 12.2002 Date of Resignation of X is 31.12.2008 Total wages of X is Rs. 5000.00 (Basic Rs.2500.00, DA is Rs.1250.00, HR is Rs. 750.00, CA is Rs.500.00) The number of years Eligible for Gratuity: Date of Relieving: 31.02. 2008 Date of Joining: 01.12.2002 So a total number of working years is 5 year Hence, Eligible Gratuity Amount (Basic+DA/26) *15 days wages per year *No.of the year completed 2500+1250*15*5/26
Now Let’s use the gratuity calculator below, and calculate the exact amount that employee will get. You can also use Microsoft Excel for handy calculation.
Hope, you got the calculation 🙂
More Information on Gratuity
Nomination from F needs to be filled by the employee at the time of joining.
Tax on Gratuity & Exemption as per IT Act
Any gratuity received by an employee of the Central Government, State Government or local authority, on death or retirement is fully exempt from tax.
The payable nontaxable amount of Gratuity is as per the calculation or Rs.20,00,000 whichever is less.
Looking for more information and facts? Refer to below links.
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