Gratuity Act

The Parliament passed the payment of gratuity bill. This will increase the limit amount to Rs.20 Lakh from the existing Rs.10 Lakh. This applies to central government employees and also private sector employees.

Considering this new payment of gratuity act, let us see the new rules, eligibility, the formula to calculate, taxation, and also the calculator. The gratuity act is nothing but a favorable bonus given to you by your employer for being loyal to them as an employee for long. The gratuity act is a defined benefit plan offered by your employer.

It is a payment made to an employee by the employer either at the time of retirement or when he is leaving the job. It is given to the employee once he has completed at least 5 years of continuous service. It is mandatory for any employer in the private sector or public sector who has 10 or more employees to pay gratuity to all employees.

Applicability of Gratuity

If your company’s employee strength is more than 10 and if you completed a minimum of 5 years of continuous service, then you are eligible for gratuity. Do

remember that once employee strength reaches 10 or more, then even though the strength is reduced later, you are still eligible for gratuity.

Temporary staff, contract workers, etc., are also eligible for the gratuity amount, as long as they are considered as employees of the organization. However, apprentices are not eligible for gratuity.

If an employee is transferred overseas on an assignment, then he is still eligible for gratuity as he is on the rolls of the organization. Probation period can be considered in determining the number of years of service.

It will be payable to you at the time of

-Retirement

-Voluntary retirement scheme

-Resignation or termination

-On disablement due to accident, disease, or death

-On retrenchment layoff

Calculation Formula of Gratuity

Gratuity in India is calculated using the formula:

Gratuity = Last drawn salary × 15/26 × number of years of service.

Note:

The ratio 15/26 represents 15 days out of 26 working days in a month.

Last drawn salary = basic salary + dearness allowance.

Years of service are rounded off to the nearest full year. For example, if the employee has a total service of 20 years, 10 months, and 25 days, 21 years will be factored into the calculation.