Saswatabanerjee
Partner - Risk Management
Bijay_majumdar
Freelancer
Subbarao.nv
Presently Working As Dy Manager Hr &
Prghr
Dy Manager Hr
Karuna_thakur
Hr Manager
+2 Others

Dear sir please give me a advice about the how can count the gratuity in per month ctc B B Sharma 8980090446
16th December 2014 From India, Ahmedabad
=Basic Salary/26*No. of Years add the amount with CTC Figure.
17th December 2014 From India, Nagpur
Dear Mr Sharma Brahmanand Last Basic Pay*No of years in Service*(15/26)
17th December 2014 From India, Delhi
Yes Correct one is:- =Last Basic Salary*15/26*No. of Years add the amount with CTC Figure.
17th December 2014 From India, Nagpur
If you want to add gratuity cost in ctc, you need to 4.8% of salary.
However, this will be incorrect to some extent since gratuity is based on last drawn salary. If the person was to leave now (assuming 5 years completed), he will get as per current salary but the accumulated effect of the ctc of previous years will be lower.
Think on those lines and you will have a more accurate model.
18th December 2014 From India, Mumbai
Dear Brahmanand
Gratuity is not part of Gross Salary of employee, but while sharing CTC pattern it is shown as 4.81% of the Basic Salary.
Below CTC structure please mention that * Gratuity as per Act. (This will solve all future issues, in case employee has very high basic and while retirement / separation, actual calculation of gratuity is more than 10 Lakhs then also you can restrict payment to 10 Lakhs, else employee will have dispute with management to have actual calculation which is higher than 10 lakhs, we have seen employees asking as ex-gratia as higher amounts (differential to 10 Lakhs) due to its part of CTC, though act supports only for 10 Lakhs)
HR Department
BrainLight HR Solutions
18th December 2014 From India, Mumbai
Hi Friends and seniors,
Greetings
Are we supposed to include Gratuity amount on monthly Basis in Salary/ctc Structure? Does the gratuity act has any mention in this regard.My Second Question is that What about gratuity of workers/Contract workers who work for more than 5 Years with the company/agency but there is no mention of it in their CTC/salary structure?
19th December 2014 From India, Vadodara
Dear Bijay,
In the Labour Law CTC is not defined. For our own calculation we all have introduced CTC concept many years ago. (Its not mandatory to show Gratuity amount in CTC, normally it is shown to represent total / overall cost of employee).
Gratuity is applicable for contract workers as well, who are working continuous with same firm/contractor for more than 5 years.
HR Department
BrainLight HR Solutions
19th December 2014 From India, Mumbai
Hi,
BrainLight,
Gratuity is Applicable as per the act. Yet it is not mandatory to Show in CTC as it is For Our Calculation only.What one should do if he has to claim for the same if there is no mention of gratuity entitlement any where in documents.Can the issue be taken up Just by proving that a person has worked for more than the period defined for the entitlement of Gratuity.Does the Terms of services calls for its mention?.is it Mandatory?
Thanks regards
Bijay
19th December 2014 From India, Vadodara
Dear Saswata Banerjee,
I appreciate your answer but 4.8% on Basic salary only and not on the total salary. The question is not for settlement of gratuity. The query is for additing into CTC only. In few companies the Gratuity and direct and indirect expenses spent on an employee is shown in CTC, so that the figures will be clear for arriving manpower cost.
19th December 2014 From India, Hyderabad
Dear Bijay

Take below as example for your understanding: (increment is done in basic salary every year)

1st Year- Basic Salary (p.a.) = 84000 - Gratuity Shown in CTC = 4040.4 (i.e. 4.81% of Basic Salary)

2nd Year- Revised Basic Salary (p.a.) = 96000 , Gratuity Shown in CTC = 4617.6

3rd Year- Revised Basic Salary (p.a.) = 96000 , Gratuity Shown in CTC = 4617.6

4th Year- Revised Basic Salary (p.a.) = 108000 , Gratuity Shown in CTC = 5194.8

5th Year- Revised Basic Salary (p.a.) = 120000 , Gratuity Shown in CTC = 5772

6th Year- Revised Basic Salary (p.a.) = 132000 , Gratuity Shown in CTC = 6349.2

Last drawn basic was 11,000 p.m. hence Gratuity calculation will be done as (11000/26) X 15 X 6 years = Rs. 38,077/-

Gratuity is shown in CTC or not shown in CTC is irrelevant, if employee has worked 5 year and above then it is applicable while separating from the employment. (To claim Gratuity employee can fill-in FORM-I as per Gratuity Act, in case of death employees nominee can claim gratuity under FORM-J)

Its mandatory by law, hence question doesn't arise if it is shown in CTC or not shown in CTC.

HR Department

BrainLight HR Solutions
19th December 2014 From India, Mumbai
Yes Mr. Subbarao
It should be 4.8% of basic plus da, not gross. I neglected to mention that. My appology to members for that.
However, if the intent is to show actual cost to company (as against the normal purpose of making a fool of candidates), then we need to actually have a model of how the gratuity liability increases with increase in salary and add that to annual ctc.....

19th December 2014 From India, Mumbai
Dear Mr.Sharma,
The exact calculation is Last Basic / 26 x 15 days per year x length of the service = Total amount payable to a person who is leaving the service.
Eligibility criteria is :: completion of service beyond 5 years 1 day.
Last basic : Basic salary at the time of resignation
If a person works beyond 6 months after eligible limit, he is eligible for 6 yrs if it is less than 6 months, 5 years will be taken as eligibility.
8th January 2015 From India, Hyderabad
Dear Members,
The basic question was confusing... the actual required information for Mr. Sharma was monthly % of Gratuity. It is 4.8% on Basic + DA (in few company's there is no DA funda for management staff). If total is is shown as Basic, we should calculate on the same as 4.8% but this does not arise. Generally we will show this component in CTC statement while computing for increment letters / issuing appointment orders. Even this 4.8% will be taken in budget while computing the co's budget along with leave wages(all these will be furnished to Accts through HR Dept).
I am also sorry that the settlement of Gratuity was mentioned by me.
8th January 2015 From India, Hyderabad
Hello BrainLight, Culd you pls share calculation/formulae for contract workers ? is it same or there is different measurment for calculating gratuity for contract workers ? Thanks Karuna
28th July 2016 From India, Noida
Benefits of Setting up An Approved Gratuity Trust by the Companies
Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit from the company. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
Gratuity is a statutory right of employee whoever completes 5 years in the same organization and is a terminal. It means, Gratuity amount is determined only on the monthly terminal wages of the employee on his exit from the Company after completion of 5 years of Service. The cost is to be borne by the Company and not by an employee. hence, unlike other fringe benefits (i.e. Medical Insurance, Term Insurance & Accidental Insurance) it can not be part of CTC. 
To understand this, let us take an Example,
Mr. A Joins the Organization with a Basic Pay of Rs. 26,000/- per month and monthly CTC of 50,000/-. Assuming that expected increase in basic salary is assumed to be 10% p.a.
Now Gratuity Payments for next 5 years will be :-
On Completion of 1 Yr - (15/26)* 28,600*1 = 16,500/-
On Completion of 2 Yrs - (15/26)*31,460*2 = 36,300/-
On Completion of 3 Yrs - (15/26)*34,606*3 = 59,895/-
On Completion of 4 Yrs - (15/26)*38,067*4 = 87,847/-
On Completion of 5 Yrs - (15/26)*41,873*5 = 1,20,788/-
Now for making the payment of gratuity, Company has 2 options :
(i) Pay as you go option - Where company makes a provision of Gratuity in the Balance Sheet on the accrual basis taking an actuarial report on BS date from an Actuary and as and when Mr. A leaves the organization, company pay gratuity from their resources and get the tax benefit for the gratuity paid.
Expected Tax Benefit calculation in case of "Pay as you Go Option" :-
For Provision of 1st Yr - NIL
For Provision of 2nd Yr - NIL
For Provision of 3rd Yr - NIL
For Provision of 4th Yr - NIL
For Payment on 5th Yr - 1,20,788/-
In this case company, Mr. A will leave the company then company will get the tax benefit of Rs. 1,20,788/-. 
(ii) Funding Option - In this option, Company decides to Setup an Approved Gratuity Trust . The Investment of Company is either "Self Managed " or “ Managed by Insurance Company”. Company contribute the annual contribution in this Gratuity Trust and get the Tax Benefits. In this case, when Mr. A will leave the company, gratuity will be to Mr. A from the Gratuity Trust.
Expected Tax Benefit calculation in case of “Funding Option” under Section 36(1)(v) of the IT Act 1961 for Annual Contribution which is 8.33% of Annual Basic Salary of Employee.
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
In this case, Mr. A will get gratuity of Rs. 1,20,788/- from the Gratuity Trust and employer will get approximate Tax Benefits of Rs.1,74,536/- for annual contribution made by him in previous 5 years. 
To get more clarity on the above example, let us take some more questions about the possibilities/event that may happen on or after completion of 5 years and their impact on the Company in case of "Funding Option" :-
Question 1. If employee died during 1st to 4th year before completion of 5th year, then what would be the benefit for Company and employee's Nominee ?
Answer 1. If employees died after 1 yr, 2nd, 3rd and 4th year but before completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
The company will get the Tax for the contribution made by him before the date of death of the employee as stated above and employee's nominee will get following Gratuity Payments from the Trust along with a future service gratuity subject to certain limits as defined by the Insurance Company whilst taking Group Gratuity Scheme from the Insurance Company.
Question 2. If the employee resigns during 1st to 4th year and before completion of 5th year, then what would be the benefit for Company and employee?
Answer 2. If employees resign during 1st to 4th year and before completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
and the employee will not get following Gratuity Payment from the Trust. The amount contributed by the company and interest accrued will be used by the trust for future payments of Gratuity to other employees of the company. 
Question 3. If the employee resigns/retires after completion of 5th year, then what would be the benefit for Company and employee?
Answer 3. If employees resigns/retires during after completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
Total Contribution in 5 years...........................= Rs.1,74,536/-
and the employee will get Rs. 1,20,788/- as Gratuity Payment from the Trust. Since the company has contributed an amount in the trust is more then what is payable after 5th year so the surplus amount and interest accrued on the contributions of will be used by the trust for payment to the other employees.
From above examples of "Pay as you go Option" and "Funding Option," it is clear that Gratuity cannot be a part of CTC but it is a legal obligation which is borne by the Company on exit of the employee.
The Company may have an option to set up a Gratuity Trust and make an annual contribution in the "Irrevocable Trust" so that he can avail the tax benefits Section 36(1)(v) of the IT Act 1961 and will have a Corpus in "Irrevocable Trust" which will be exclusively used by the Trustees to meet with Company obligation towards Gratuity Payments.
You may avail our Consulting Services for Setup of Gratuity Trust Fund, Employee Benefits Plans Restructuring as per the rules and regulations of the Act/Acts (i.e. Gratuity, Leave Encashment & Long Service Awards) & Retention Schemes like Employer-Employee Scheme for your highly paid employees.
With Regards
Tikaram Chaudhary
Group Gratuity Trust Fund & Group Insurance (Retention Schemes) Consultant
(Experienced Consultant with 10 years of exposure in assessment/valuations of Employees Benefit Liabilities specially Gratuity/Leave Encashment Liabilities & Retention Schemes)
Email Id: gratuityconsultant@gmail.com
Mobile Number: 9211637063
For more details about us visit our blog at www.gratuityconsultant.blogspot.com
25th February 2019 From India, Delhi
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