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Hiten Parekh
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Hello Friends,We have a Group Gratuity Scheme of LIC with life Cover. Wherein we pay premium every year to remew the same.Gratuity amt calculated = Last Drawn Basic x 15/26 x Completed Year Service Now i am in the process of restructuring the Salary from Public Sector Line to MNC style i.e. CTC formsGiven the background my questions are1. Whether Gratuity forms a part of CTC? 2. Is it legal to include Gratuity in CTC? What is the ususal practice3. How do the benefit per employee to be calculated you know if to be shown in CTC.4. How the Gratuity is valued if you want to know the CTC whether it forms a part of the same or not.5. Please also let me know how Mediclaim is to be valued as benefit to employee - whether it forms a part of CTC or not. Please let me know at earliest. You can mail me on hank youRegardsPari
From India, Mumbai
Hi Pari,
In my opinion, Medi-Claim can be included in CTC, if the medi-claim premium payment is being done by the company on behalf of the employee.
In my organisation, we include in CTC. We have slabs for each grade, say if an employee is in Grade C, then the slab says that his premium amount should be 1000/-, then the same amount of Rs. 1000 as medi-claim is considered in CTC computation.
W.r.t to Gratuity I have no idea.

From India, Bangalore
I think Gratuity and Medilciam can be included in CTC. This is totally depond on the organisation practices and policies. On the other hand if we not include the gratuity and mediclain in CTC, then we can show the same as additional benefits (only meediclaim)

From India, Delhi
Yes 1.Gratuity is a part of CTC — — 2. Yes its totaly legal. — — 3.put one part for Monthly basis and second for annualy. I AM MAILING YOU AT CORP.LEVEL.
From India, Ahmadabad
Dear All, What we do in our company is, we include Gratuity in CTC calculation. Reason: That is payment which company is suppose to pay the employee, so it should be calculated in "COST TO COMPANY"
From India, Mumbai
Gratuity can be part of CTC. ie (Basic+DA/26*15) can be shown as part of CTC. The premium component of Mediclaim can also be part of CTC. Ravi Warrier
From India, Bangalore
Thanks SumanaYou mean first co has to decide on amount gradewise which they think employee is entitled.Then they have to approach insurance companies for quotes.And insurance companies will inform the insurance cover accordingly.Then how can we syncronise the HR Policy - say Co. promises mediclaim cover of Rs.1.00 lacs to employees. How will fit in with the premium. Thats one thing.Secondly if i decide and take mediclaim of Rs.1.00 lacs per employee + 3 in family coming upto 4.00 lacs per employee. In case of senior members it can go upto 12.00 lacs (3.00 per employee + 3 i.e. 3.00 x 4) How do I represent that in CTC monthly as wel as annual.You all have cleared my notion about including Mediclaim premium and Gratuity in CTC but not how it is valued / calculated / costed.Please clear me on this.Thank youRegardsPari.
From India, Mumbai
Hi Parul,About Gratuity it is to be valued at 4.83%. a detail explanation posted on site i m attaching for your reference. And please tell me the reasoning / logic of 3.33%. Also clear 3.33% of what.Please,You can mail me on hanksRegardsPari
From India, Mumbai

Attached Files
File Type: doc Gratuity calculation.doc (24.5 KB, 15319 views)
File Type: pdf Gratuity Valuation knowledge.pdf (60.2 KB, 5769 views)

Following are my replies to your queries:

1. Whether Gratuity forms a part of CTC?
Yes. As per the CTC concept, we should calculate the total cost incurred by the company on employing a person. So, each & every cost incurred on benefits, retirels, direct & indirect etc needs to be included in CTC calculation. It varies from company to company depending upon company philosophy & policies & the person who is calculating the cost.
2. Is it legal to include Gratuity in CTC? What is the usual practice
Yes very much. Almost all companies include gratuity in CTC.
3. How do the benefit per employee to be calculated you know if to be shown in CTC.
Different companies have different practices. Following three are most common:

i) By using actual gratuity formula i.e. 4.83% of PF salary (Basic + DA + any other component on which PF is being deducted).
ii) Actuarial calculation, i.e. some where about 6 % of PF salary. Logic in support of this formula comes from the fact that payment is being made to employee not on the day of calculating CTC but on the day of exiting on current PF salary.
iii) Many companies have gratuity link insurance policies. They simply put the yearly insurance premium into CTC calculation for respective employee.
4. How the Gratuity is valued if you want to know the CTC whether it forms a part of the same or not.

Pl refer the reply given to point no.3

5. Please also let me know how Mediclaim is to be valued as benefit to employee - whether it forms a part of CTC or not.

Yes it is. Yearly insurance premium given for the employee needs to be taken into CTC calculation.


From India, Calcutta
Section 7 of the Payment of Wages Act 1936 (PWA) permits deductions which can be made from wages and does not allow statutory deduction under the Payment of Gratuity Act (PG). A register is required to be made under the PWA to furnish the details of deductions other than mentioned under the above section. Section 20 of the act attracts penalty to contravene section 7 of the act. Better read with case laws, to have more understanding the law.

The preamble of Payment of the Gratuity Act itself is clear that it was enacted to introduce a scheme for payment of gratuity for certain industrial and commercial establishments as a measure of social security. The significance of this legislation lies in the acceptance of the principle of gratuity as a compulsory retrial benefit. (ref: Jeevan Lal Ltd. v. The Appellate Authority under the Payment of Gratuity Act.

The Act itself is Payment of Gratuity and not the Deduction of Gratuity. In nowhere in the act, it states of deductions and however, the word ‘payment’ has been used. No act fully describes to its executions principles and therefore, the appellate authorities and legislative courts have the jurisdiction to impinge into its interpretations.

“Gratuity” as observed by the Supreme Court in its etymological sense, means a gift, especially for services rendered or return for favours received. See AIR 1970 SC 919, Delhi Cloth & General Mills Co. Ltd. v. Its Workmen. The general principle underlying the gratuity scheme is that by their length of service, workmen entitled to claim a certain amount as a retrial benefit. See AIR 1960 SC 251, Indian Hume Pipe Co. Ltd. v. ts Workmen. Gratuity has to be considered to be an amount paid unconnected with any consideration and not resting upon it and has to be considered something given freely or without recompense. It does not have foundation on nay legal liability, but upon a bounty steaming from appreciation and graciousness. Long service carries with it expectation of an appreciation from the employer and a gracious financial assistance to tide over post retrial difficulties.

Section 4(1) incorporates the concept of gratuity being a reward for long, continuous and meritorious services. It creates right infavour of an employee and at the same time creates an obligation upon a employer. (Jeevan Lal Ltd. v. The Appellate Authority under the Payment of Gratuity Act. Therefore it is a claim arising on his superannuation, retirement, resignation, on death, and disablement due to accident or disease and not by deduction from his own salary.

Section 8 if the act prescribes about the recovery of the gratuity and section 9 about the penalty. It is a punishable offence with an imprisonment.

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