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I would like to know what is the amount a company can fix on DA and Basic for calculation on Gratuity,
My company is into manufacturing and there are few employees who have been with the company for 5 years. so, for them i need to calculate gratuity, but not sure what is the minimum amount on Basic and DA that has to be set for calculating.
say for example: a person is earning 2L/ month what is the amount we can set on Basic and DA for calculating, so that both parties can enjoy benifits. Can a company set Rs. xxx amount on Basic and DA based on their discretion or what is the procedure that i have to follow. I know how to calculate gratuity, but don't know the limit. ( Gratuity limit currently is 20L).
Kindly help me on this please.
6th October 2018 From India, Chennai
Dear friend,
Go thru' the similar qy.in this links:
https://www.citehr.com/593157-gratui...c-da-last.html
https://www.citehr.com/78804-gratuit...tuity-act.html.
If your employees are covered under the Gratuity Act the rule governing this aspect is:
1) The gratuity amount depends upon the tenure (No.of years) of continuous service and 2) last drawn salary.
It is calculated according to this formula:
Last drawn salary (basic salary plus dearness allowance) X 15/26 X number of completed years of service.
An employer can however give higher gratuity than the amount under the prescribed formula.
"Quote""
Sec. " [8] [(r) "superannuation", in relation to an employee, means the attainment
by the employee of such age as is fixed in the contract or conditions of
service at the age on the attainment of which the employee shall vacate the
employment;]
(s) "wages" means all emoluments which are earned by an employee while
on duty or on leave in accordance with the terms and conditions of his
employment and which arc paid or arc payable to him in cash and includes
dearness allowance but does not include any bonus, commission, house rent
allowance, overtime wages and any other allowance.
xxxxxx
Payment of Gratuity Act, 1972
Section: 3
Controlling authority
The appropriate Government may, by notification, appoint any officer to be a
controlling authority, who shall be responsible for the administration of this
Act and different controlling authorities may be appointed for different areas.
Section: 4
Payment of gratuity.
(1) 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:
Provided further that in the case of death of the employee, gratuity payable
to him shall be paid to his nominee or, if no nomination has been made, to
his heirs, and where any such nominees or heirs is a minor, the share of such
minor, shall be deposited with the controlling authority who shall invest the
same for the benefit of such minor in such bank or other financial institution,
as may be prescribed, until such minor attains majority.]
Explanation. : For the purposes of this section, disablement means such
disablement as incapacitates an employee for the work which he, was
capable of performing before the accident or disease resulting in such
disablement.
(2) For every completed year of service or part thereof in excess of six
months, the employer shall pay gratuity to an employee at the rate of fifteen
days wages based on the rate of wages last drawn by the employee
concerned:
Provided that in the case of a piece-rated employee, daily wages shall be
computed on the average of the total wages received by him for a period of
three months immediately preceding the termination of his employment, and,
for this purpose, the wages paid for any overtime work shall not be taken into
account.:
Provided further that in the case of [an employee who is employed in a
seasonal establishment and who is riot so employed throughout the year], the
employer shall pay the gratuity at the rate of seven days wages for each
season.
6th October 2018 From India, Bangalore
Is there any upper limit for gratuity?
Gratuity is a benefit given by the employer to the employee. A recently approved amendment by the Centre has increased the maximum limit of gratuity, to be exempted from tax to Rs. 20 Lakhs from the then existing ceiling of Rs. 10 Lakhs. This is applicable to both the private sector and public sector employees.
Calculations for exemption of gratuity under the Income Tax Act is covered under section 10(10).As per current law, gratuity received by a government employee is fully exempt from tax. The maximum amount they can receive is Rs 20 lakh as per amendments made following the 7th Pay Commission recommendations.
What is the maximum amount payable under Gratuity Act?
At present, the maximum ceiling for the purpose as per the Act is Rs. 20 lakhs. Even then employees may receive gratuity at a higher rate than prescribed under the Act. This is supported by Sec. 4(5) of the Act which protects gratuity if it is at a rate better than that provided under the Act.
As the Gratuity is to be calculated on the 'Last Pay drawn' on Basic + DA (and pl.see what are included and what not included as above.). The Act doesn't set any "Upper Limit" for 'Last drawn salary'.
Your query gives me a suspicion that in order to limit the gratuity you are trying to 'FIX'/modify the Basic and/or DA now which is irregular and against law. Regret if I am wrong. May be you haven't done this 'fixing' when he/she was joined your firm, presumably paid a consolidated salary which you now trying to regularise formally.
6th October 2018 From India, Bangalore
Thanks Kumar for your valuable time for replying to the above query.
i have already gone through that site, and i couldnt get the answer which i am looking for, that is why i have posted a new topic.
I understood how to calculate the gratuity and everything.
My question is based on the Gratuity Act, is there any fixed amount on the basic and DA or can company fix the basic and DA.
this is an example : for a person, last drawn CTC is 1L, so for this person can my company fix Basic as 20,000 and DA as 20,000 and the rest as other allowance or should i have to go by the formula as basic is 40 to 50% of CT and same goes for DA.
the above example is my question.
thanks and regards
shankar.
6th October 2018 From India, Chennai
"last drawn CTC is 1L"
Concept of CTC does not arise.
Formula for gratuity is clear:
It revolves around basic pay DA and years of service.
Has your company not fixed Basic Pay DA as part of salary structure?
Then there should be no issue about gratuity calculation
Last drawn salary will be taken to account.
6th October 2018 From India, Pune
Thanks Nathrao,
No, the company has not fixed any basic and DA as of yet, that is why this question arises. Any ways thanks for the reply and your time.
8th October 2018 From India, Chennai
Dear Mr Shankar,
As suggested by the learned member the Gratuity is calculated on basis of prescribed formula and last monthly wages (Basic+DA) drawn.
In your example you have not mentioned whether the CTC structure is monthly or annual.
You can’t fix separate Basic and DA for gratuity. It will be on basis of actual Basic+DA which the individual getting in his monthly salary.
Assuming the above mentioned structure is monthly then the Gratuity will be:-
(20000+20000) *15/26* No. of continuous service completed
The service should be calculated in years only, if more than 06 month than r/off to next year, like 5 year 7 months will be counted as 6 years.
For more detail, pls share actual Basic+DA and period of service.
Hope the above will serve your purpose.
8th October 2018 From India, Delhi
Thanks Mr. Pan Singh Dangwal,
The above mentioned 1L is an example salary for 1 month (take it as last drawn salary), we have not defined any structure as of yet because the company strength is very low. so as per gratuity calculation, should i go with (40% to 50% basic + 40% to 50% DA)*15/26 or can i have (xxx basic+ xxxDA)*15/26? where the XXX amount is defied by the company.
thanks and regards
shankar.
8th October 2018 From India, Chennai
Dear Shankar,
Pls first share what is exact employee strength from last 12 months.
Broadly the act is applicable on:-
“every shop or establishment within the meaning of any law in which ten or more persons are employed, or were employed, on any day of the preceding twelve months”.
The case can be complicated for your organization. Coz you have been paying full salary without any breakup, in such case the whole salary will be treated as Basic+DA and all statutory benefits (Bonus, EL, Gratuity, compensation etc.) need to be calculated on whole salary.
However, you have taken call on well in time. Since the employees are still working not left the date. You can now draft proper salary structure and issue CTC letter, so that same will be applicable for all future references. Please find attached a CTC Format. This will help you to frame CTC Structure, you can modify as per your requirement.
Same salary structure you can apply for PF-ESI as well (if covered under the Acts).
Hope the above will meet your requirement.
8th October 2018 From India, Delhi

Attached Files
 Membership is required for download. Create An Account First CTC Calculator.xls (40.5 KB, 36 views)

Thanks Mr. Pan Singh Dangwal
I will try and work on that attachment which you have sent me.
If any doubts, will send a message to you directly.
thanks and regards
shankar.
8th October 2018 From India, Chennai
Dear friend,
I wish to drive home a point here. It's better for any employer to fix basic, DA, HRA and other allowances before hand itself at the time of offer/apptt./joining in an establishment. Even when there is CTC pattern followed in an organisation, in order to avoid litigation and unrest, every details shall be provided. Why I'm pressing for this is due to a possibility that some estt. keep them highly guarded or not spelling out the bifurcation to the employees and keep the take home salary only is known. This might throw open a litigation, If I were an employee I could as well raise a dispute that my take home or gross salary consisted of Basic & DA only and I should be paid gratuity on this which can be justified as I was not given a breakup before or during my employment but only when I quit this is being revealed and therefore it's arbitrary.
Further, there should be pre-determined formula for DA, HRA atleast while there need not be any formula for Basic and/or other allowances.
I would suggest, it's reasonable that this formula should be more or less in line with what is being followed by other establishments in the very same sector/ trade/ business/services.
Few guidlines were discussed by members in earlier posts on this issue which can be consulted to have proper guidelines.
8th October 2018 From India, Bangalore
Thanks Mr. Kumar,
Till now the company has not set any Basic or DA, We have been paying what was negotiated during the interview after taking PF and ESI (ESI if eligible).
But now we have employees who have been with the company for 5+ years and still continuing. So, in order for us to calculate gratuity, we are implementing the salary breakup. Only here we got stuck with the gratuity calculation like should we take gratuity in part of the salary or calculate it separately.
thanks and regards
shankar.
8th October 2018 From India, Chennai
Basic and DA should not be less than the Minimum Wages prescribed for the scheduled employment for calculation of gratuity
15th October 2018 From India, Pune
Better late than never. And nothing is lost since even now you have no obligation to reveal the bifurcation unless need arises when any one has to be settled on separation. If you would indicate the wage levels and what are all should form part we could suggest reasonable bifurcation suitable for your entity to be in line with your contemporaries.
16th October 2018 From India, Bangalore

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