For Salaried Employees

All about Gratuity

Thia article is aiming at salaried employees only. Here you are going to see all details about gratuity.

What is Gratuity:

Lump sum amount will be given to you by your employer at the time of leaving organization or retirement which is earlier . . But minimum criteria is you should be with the same organization for at least 4 years 8 months. In case of employee death nominees also can get this money  or if employee is disabled due to accident  organization will pay the gratuity amount without completing this 5 years eligibility period.

The objective of gratuity is to make it attractive for employees to stay in the organization in the long term .

Who are Eligible to get Gratuity

We all think that we need to serve on same company for 5 years to get gratuity . But it is not mandatory to complete 5 years.  As per Gratuity Act, 1972, employees who has continuously  working for more than 4 years and 240 days are eligible to get gratuity.

To get more details you can go through the below  link which is discussed in Labour Act.

http://labour.nic.in/upload/uploadfiles/files/ActsandRules/SocitySecurity/ThePaymentofGratuityRules.pdf

To get further information on this act ,you can check 26 to 31 page of above pdf. Below lines are extracted from the gratuity act 1972,

“Continuous Service” means uninterrupted service and includes service which is interrupted by sickness, accident, leave, lay-off, strike or a lock-out or cessation of work not due to any fault of the employees concerned, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.
Explanation I.- In the case of an employee who is not in uninterrupted service for one year, he
shall be deemed to be in continuous service if he has been actually employed by an employer
during the twelve months immediately preceding the year for not less than-
(i) 190 days, if employed below the ground in a mine, or
(ii) 240 days, in any other case, except when he is employed in seasonal
establishment

So as per above rules, eligibility criteria is 4 years 240 days.Gratuity

How gratuity is calculated:

Gratuity amount will be calculated as follows:

Gratuity = (Last drawn salary / 26) x 15 x Number of years of service

Last drawn Salary = Only Basic +  DA( dearness allowance)

26 is the number of working days per month.

15 is –Gratuity is payable for 15 days per year for a period the employee has worked in the organization.

Number of years service = It will be rounded off to the next year. Means, If you worked  for 6 years and 8 months , it will be considered as 7 years.

You can use below calculators for Gratuity and you can find many calculators in Google.

http://easycalculation.com/finance/gratuity-calculation-india.php

Taxation on Gratuity Amount:

Tax exemption for gratuity has now been raised to Rs 10 Lakh.  This tax-free applies to the aggregate of gratuity amount received from one or more employers in the same or different years. Previously it was 3.5 Lakh only, to make it attractive govt changed to 10 Lakh as tax free. So in case you get 4 Lakh as gratuity amount from one employer and after few years you get 9 lakh as gratuity from another employer , so total you received is 13 Lakh. But as per gratuity act only 10 Lakh is the tax limitation for single person. So you need to pay tax for extra 3 lakh.

Hope it will be useful  for you to  some extent. Share your views on this.

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About Sravanthi

Hi ..I am Sravanthi, working in IT field and i'm more passionate about managing personal finance. I am writing this blog to help people especially salaried employees to invest their money wisely . Check out the articles ..happy reading :)

Discussion

4 thoughts on “All about Gratuity

  1. DA is applicable for all govt. employees where as for pvt sector can DA be considered as 0??

    Posted by Abhi Abhishek | February 26, 2013, 11:23 am
  2. Yes Abhi,.There is no DA for private sector employees. So you can consider DA as zero and calculate your gratuity amount based on formula given.

    Posted by tipsforinvestor | February 26, 2013, 12:16 pm
  3. The Gratuity Act, 1972 is applied for all the private companies? or they can have thier own act’s?

    Posted by Chandrakanth | February 27, 2013, 8:42 am
  4. Hi Chandrakanth,

    Yes, Govt made it mandatory for all employers with more than 10 employees to pay gratuity. So private firms also needs to pay gratuity. Some firms may even give gratuity for employes who works 3 years also, It depends on companies own rules. But every employer should give the gratuity once employees satisfy this 4 years 8 months criteria. If not we have right to fight against employer as per labour commission rules. This act is not applicable for apprentices and trainees.

    Thanks,
    Sravanthi

    Posted by tipsforinvestor | February 27, 2013, 10:03 am

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