Hello friends,
It might be useful for you to calculate Gratuity while working out CTC. Until now, we have been calculating gratuity at 4.16%, assuming a month is comprised of 26 working days and not 30 days when calculating Gratuity.
Gratuity should be calculated at 4.16% or 4.83%.
Logic behind 4.16%:
- 15 days' salary for 1 year
- 0.5 months' salary for 1 year
- 0.5 * 5 = 2.5 months' salary for 5 years
- 2.5 months' salary for 60 months (12 x 5)
Now, how much is 2.5 as a percentage of 60?
2.5 x 100 / 60 = 4.16%
So, gratuity is payable at 4.16%, which is the wrong calculation. The correct calculation is as follows:
Logic behind 4.83%:
- 15 days' salary for 1 year
- A month is comprised of 26 working days, not 30 days
- It means 57.69% of the monthly basic is payable (15 x 100 / 26)
- 0.58 months' basic for 1 year
- 0.58 * 5 months' basic for 5 years
- 2.9 months' basic for 60 months (12 x 5)
Now, how much is 2.9 as a percentage of 60?
2.9 x 100 / 60 = 4.83%
Hence, gratuity should be calculated at 4.83% and not 4.16%.
Amit Goyal
From India, Delhi
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10It might be useful for you to calculate Gratuity while working out CTC. Until now, we have been calculating gratuity at 4.16%, assuming a month is comprised of 26 working days and not 30 days when calculating Gratuity.
Gratuity should be calculated at 4.16% or 4.83%.
Logic behind 4.16%:
- 15 days' salary for 1 year
- 0.5 months' salary for 1 year
- 0.5 * 5 = 2.5 months' salary for 5 years
- 2.5 months' salary for 60 months (12 x 5)
Now, how much is 2.5 as a percentage of 60?
2.5 x 100 / 60 = 4.16%
So, gratuity is payable at 4.16%, which is the wrong calculation. The correct calculation is as follows:
Logic behind 4.83%:
- 15 days' salary for 1 year
- A month is comprised of 26 working days, not 30 days
- It means 57.69% of the monthly basic is payable (15 x 100 / 26)
- 0.58 months' basic for 1 year
- 0.58 * 5 months' basic for 5 years
- 2.9 months' basic for 60 months (12 x 5)
Now, how much is 2.9 as a percentage of 60?
2.9 x 100 / 60 = 4.83%
Hence, gratuity should be calculated at 4.83% and not 4.16%.
Amit Goyal
From India, Delhi
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Dear Amit,
The correct way to calculate the gratuity is as per the following formula:
15/26 x GS x SER
Gratuity Salary (GS): Last drawn basic salary including dearness allowance (if any).
Gratuity Service (SER): Completed years of Continuous Service with part thereof in excess of six months.
Regards,
Naresh Taneja
From India, Mumbai
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The correct way to calculate the gratuity is as per the following formula:
15/26 x GS x SER
Gratuity Salary (GS): Last drawn basic salary including dearness allowance (if any).
Gratuity Service (SER): Completed years of Continuous Service with part thereof in excess of six months.
Regards,
Naresh Taneja
From India, Mumbai
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Hi Naresh,
You are absolutely right. This is how we calculate the gratuity amount when an employee leaves the organization after working for at least 5 years.
However, how would you calculate the gratuity when determining the monthly CTC of an employee upon joining the organization? I applied the same formula you recommended, but for calculating the monthly CTC, not the consolidated gratuity amount. It seems there might have been a misunderstanding.
Amit Goyal
From India, Delhi
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You are absolutely right. This is how we calculate the gratuity amount when an employee leaves the organization after working for at least 5 years.
However, how would you calculate the gratuity when determining the monthly CTC of an employee upon joining the organization? I applied the same formula you recommended, but for calculating the monthly CTC, not the consolidated gratuity amount. It seems there might have been a misunderstanding.
Amit Goyal
From India, Delhi
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Hi Amit,
When you intend to show the Gratuity Amount as a part of CTC of an employee at the time of joining, then in my view, you cannot do the calculation based on 60 months. If you do, you are implying that the new joiner will not receive any salary increments for the next 5 years! Moreover, if the employee leaves after 60 months, you will have to calculate their gratuity based on the Last Salary Drawn. Therefore, to keep the matter simple and logical, we should calculate the gratuity as 4.16% of the salary being offered at the time of joining.
Please let me know your comments.
Regards,
Naresh Taneja
From India, Mumbai
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When you intend to show the Gratuity Amount as a part of CTC of an employee at the time of joining, then in my view, you cannot do the calculation based on 60 months. If you do, you are implying that the new joiner will not receive any salary increments for the next 5 years! Moreover, if the employee leaves after 60 months, you will have to calculate their gratuity based on the Last Salary Drawn. Therefore, to keep the matter simple and logical, we should calculate the gratuity as 4.16% of the salary being offered at the time of joining.
Please let me know your comments.
Regards,
Naresh Taneja
From India, Mumbai
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Dear Amit,
Since in your original post you had mentioned the figure of 4.16, I referred to that. Otherwise, if one calculates the Gratuity as I had suggested, it would work out to 4.8%. I have made a sample CTC and its breakup and attaching the same for your info, please. One may modify it to add other provisions for maximizing Income Tax rebates.
Regards,
Naresh Taneja
From India, Mumbai
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Since in your original post you had mentioned the figure of 4.16, I referred to that. Otherwise, if one calculates the Gratuity as I had suggested, it would work out to 4.8%. I have made a sample CTC and its breakup and attaching the same for your info, please. One may modify it to add other provisions for maximizing Income Tax rebates.
Regards,
Naresh Taneja
From India, Mumbai
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If the person leaves say after 7 years, so how will the gratuity be calculated at the current salary structure or accumulated over the period of 7 years ?
From India, Mumbai
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From India, Mumbai
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May I raise the question that gratuity is given after retirement, so what sort of contribution does this make to the CTC as it is deducted from the gross? What are the requirements to deduct, as we contribute to the PF, so is the gratuity also contributed? I'm confused because I provide a plain salary structure which includes basic, HRA, conv., special allowance, that's it.
From India, Indore
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From India, Indore
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Mr. Indu Patel, Gratuity amount can get anytime after completion of 5 yrs of exp in an organization... It is not about after retirement. Regards, Viswanath
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Can any employer refuse the gratuity act by giving the same amount what they have dedected from ctc as gratuity contribution during the whole service.
From India, Jamnagar
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From India, Jamnagar
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Dear Naresh,
I have a question regarding gratuity entitlement after completing 5 years of continuous service. Is it mandatory for the employer to pay gratuity to an employee for the next continuous service once the employee has claimed it after completing the first 5 years of service?
Regards,
Suman A.V.K
From India, Hyderabad
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I have a question regarding gratuity entitlement after completing 5 years of continuous service. Is it mandatory for the employer to pay gratuity to an employee for the next continuous service once the employee has claimed it after completing the first 5 years of service?
Regards,
Suman A.V.K
From India, Hyderabad
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How would Gratuity be calculated? If the Monthly Basic is 16960.00 and the number of years of service is 12 years. According to the formula:
1. GS = (16960 + DA)
2. GSER = 12 X 12
So Gratuity should be = 15/26 * (16960 + DA) * 12 * 12
Would like to know whether I am on the right track.
Regards,
BeekayrDG
From India, Pune
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1. GS = (16960 + DA)
2. GSER = 12 X 12
So Gratuity should be = 15/26 * (16960 + DA) * 12 * 12
Would like to know whether I am on the right track.
Regards,
BeekayrDG
From India, Pune
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Dear Vinayak Gratuity %:4.81%: (15/26*1year/12months*100) p.m calculation on Basic + D.A rgds S.V
From India, Hyderabad
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From India, Hyderabad
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It's 4.81%.
Example - The formula is (Basic + DA / 26) * 15 * No. of completed years of services. If basic + DA is 5000 and we calculate the gratuity for 1 year, then (5000 / 26) * 15 * 1 = 2884.61. Now we will calculate on a per month basis: 2884.61 / 12 = 240.38. Now we calculate the percentage: 240.38 / 5000 * 100 = 4.8076, which means 4.81%.
From India, Kota
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Example - The formula is (Basic + DA / 26) * 15 * No. of completed years of services. If basic + DA is 5000 and we calculate the gratuity for 1 year, then (5000 / 26) * 15 * 1 = 2884.61. Now we will calculate on a per month basis: 2884.61 / 12 = 240.38. Now we calculate the percentage: 240.38 / 5000 * 100 = 4.8076, which means 4.81%.
From India, Kota
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Hello,
My father passed away during his service period after providing 43 years of service in an organization due to cancer. His last drawn salary was $7500 per month.
Please calculate his gratuity amount. Is there a maximum service length beyond which he is not entitled to receive gratuity?
From India, Jaipur
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My father passed away during his service period after providing 43 years of service in an organization due to cancer. His last drawn salary was $7500 per month.
Please calculate his gratuity amount. Is there a maximum service length beyond which he is not entitled to receive gratuity?
From India, Jaipur
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