Gratuity

What is Gratuity?

Gratuity is a financial surplus that is handed to an employee when they leave a certain organisation after 5 or more years of service.

Who is eligible for Gratuity?

Generally, an employee is eligible for gratuity when:

• They leave their place of employment after more than 5 years of service.
• They have retired from service.
• The employee dies and then the gratuity is provided to the nominee instead.
• The employee becomes disabled due to an accident or a sickness.

How is Gratuity calculated?

The formula to calculate gratuity is :

(15 x Your last salary x duration of tenure)/26 [For employees who are covered under the Gratuity act]

(15 x Your last salary x duration of tenure)/30 [For employees who are not covered under the Gratuity act]

It is easy to know if your employees are covered under the Gratuity act or not. The 1972 act states that the organisations that are employing 10 or more employees regularly for a year are covered under the act.

Therefore, considering that the employee’s last drawn salary is 40,000, and the duration of their tenure has been 10 years, then the gratuity will come down to:

(15 x 40,000 x 10)/26 = Rs. 2,30,770 [For an employee who is covered under the Gratuity Act]

(15 x 40,000 x 10)/30 = Rs. 2,00,000 [For an employee who is not covered under the Gratuity Act]

What is the Gratuity Act?

The Payment of Gratuity Act is an act that helps provide financial aid to employees after they have completed a certain tenure of service to an organisation. Under this act, an employee is entitled to a sum that adds up to 15 days of the wage for every year of service rendered.

How much Gratuity will I get after 5 years? (Chart of Service Tenure and Gratuity)

After a service of 5 years at a particular organisation, your gratuity according to the Gratuity Act will come down to:

(15 x Your last salary x duration of tenure)/26

Or in this case, (15 x Your last salary x 5)/26.

Is the Gratuity amount taxable?

The gratuity amount given to an employee is not taxable.

How to check Gratuity status online?

To check gratuity and confirm its status an employee can always reach out to their employer or their HR. In addition to that, if they have completed 5 years of services at their place of employment, they are entitled to a sum that can be calculated using the formula:

(15 x Your last salary x duration of tenure)/26.

For more information, you can visit the website www.incometaxindia.gov.in.

How can I check my gratuity amount online?

You may calculate your gratuity amount by using the formula:

(15 x Your last salary x duration of tenure)/26.