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.
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
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.
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.