Saturday, November 9, 2024
HomePersonal FinanceWhat is Gratuity? How is this amount calculated?

What is Gratuity? How is this amount calculated?

Gratuity: According to the Payment of Gratuity Act, gratuity is given to an employee who has worked for 4 years, 10 months, 11 days in the job.




Gratuity: Many employed people are still unaware of gratuity. Actually, the gift given by the company to the employee in return for working for years is called “Gratuity”.

A small part of the gratuity is deducted from the salary of the employee, but a large part is given by the company.

Think of it as

When the employee leaves the company after working for a long time, then he is given gratuity in addition to pension and provident fund.

Usually gratuity is available after retirement, but, if you are changing jobs or leaving midway, you can take gratuity earlier even after fulfilling certain conditions.

4 years, 10 months, 11 days:

If the employee fulfills certain conditions of the job, then the payment of gratuity will be guaranteed to him according to a prescribed formula.

According to the Payment of Gratuity Act, 1972, gratuity is given to any employee who has worked continuously for 4 years, 10 months, 11 days in the service.

Because only after five years of service, any employee becomes entitled to law gratuity. According to the current system, if a person has worked in a company for at least 5 years, then he is entitled to gratuity.

Payment of Gratuity Act, 1972

Under the Payment of Gratuity Act, 1972, this benefit is available to every employee of an organization where more than 10 employees work.

If the employee changes job, retires or leaves the job due to any reason, but he fulfills the rules of gratuity, then he gets the benefit of gratuity.

Calculation of Gratuity:

If you want to calculate gratuity, then you must know about the previous salary and the period of service.

Formula to calculate gratuity = (15 X previous salary X working hours) / 26

Here the previous salary means basic salary, dearness allowance and commission on sales.

Suppose, your previous salary is Rs 60,000 per month and you have worked in a company for 12 consecutive years, then your gratuity can be calculated like this

Gratuity = (15 X 60,000 X 12)/26 = Rs 4,15,385

That is, after doing 12 years of service, your gratuity will be Rs 4,15,385.

Is gratuity taxed?

Under Section 10(10) of the Income Tax Act, an amount up to Rs 20 lakh received by a company or any institution as gratuity to an employee is tax-free. Earlier, gratuity up to Rs 10 lakh was tax-free.

Parvesh Maurya
Parvesh Maurya
Parvesh Maurya, has 5 years of experience in writing Finance Content, Entertainment news, Cricket and more. He has done BA in English. He loves to Play Sports and read books in free time. In case of any complain or feedback, please contact me @ informalnewz@gmail.com
RELATED ARTICLES
- Advertisment -

Most Popular

Recent Comments