How To Calculate Gratuity

Gratuity is an advantage gotten by a representative for administrations rendered to an association. For organizations secured under the Gratuity Act, this advantage is paid when a representative finishes at least five years of an administration with the business. A representative gets Gratuity when he/she leaves, resigns or is laid off. In the event of death or disablement, there is no base qualification period.

How Gratuity is calculated

The Gratuity sum relies on the residency of administration and last drawn compensation. It is determined by this recipe: Last drawn compensation (essential pay in addition to dearness remittance) X number of finished long periods of administration X 15/26.

As indicated by this equation, the timeframe of more than a half year or more is considered as one year.

This implies in the event that you have finished five years and seven months of the administration, the number of years would be considered as six years for estimation of Gratuity advantage.

Then again, if the administration time frame is five years and five months, for Gratuity estimation it will be viewed as five years.

A business can anyway give higher Gratuity than the sum under the endorsed equation.

Greatest Amount

For government representatives, Rs. 20 lakh is the most extreme sum that can be paid as Gratuity. The Seventh Pay Commission had prescribed increment in the Gratuity roof to Rs. 20 lakh from the prior dimension of Rs. 10 lakh.

Pay Tax Treatment of Gratuity

For government representatives, the whole measure of Gratuity got on retirement or passing is right now exempted from pay charge.

If there should arise an occurrence of non-government workers, pay charge administers on Gratuity are appropriate contingent upon whether representatives are secured under the Payment of Gratuity Act, 1972 or not.

For non-government workers secured under the Gratuity Act, the pay charge exclusion on any Gratuity got is least of the accompanying:

  • Most extreme sum indicated by the administration which is as of now Rs. 10 lakh
  • Last drawn compensation X 15/26 X long periods of administration
  • Genuine Gratuity got

For instance, the last drawn pay (essential in addition to DA) of Mr Ashish, for instance, is Rs. 60,000 (every month) and he has labored for a long time. The Gratuity as per the recipe is Rs. 8.65 lakh yet assume he has really gotten Gratuity of Rs. 12 lakh.

So for money charge computation, Rs. 8.65 lakh will be considered for exception. So Mr Ashish will cover government expense on Rs. 3.35 lakh (Rs. 12 lakh – 8.65 lakh).

For non-government workers not secured under the Payment of Gratuity Act, the pay charge exception on any Gratuity got is least of the accompanying:

  • A large portion of month’s normal pay for each finished year of administration
  • Most extreme sum indicated by the administration which is at present Rs. 10 lakh
  • Actual gratuity received




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