Understanding Gratuity: How Do You Calculate It When Salaries Change Over Time?

Gratuity Calculation

Could anyone please suggest how to calculate gratuity? I would also like to know how the basic salary plus Dearness Allowance (DA) will be considered when calculating gratuity. For example, if a person has been working in an organization for the last seven years, and their basic salary keeps changing over time, which basic salary will be considered at the time of leaving the job?

Regards

Thank you for your reply, but what (Basic + DA) shall we consider? The one which he is getting at the time of leaving the organization, shall we calculate on that? Kindly reply.

Not only for gratuity but for any calculation such as earned leave encashment, overtime, etc., you have to calculate the Basic + DA + VDA as of the specific date.

Regards,
Kamesh

If you don't have the VDA component, then only Basic + DA. If you have only Basic, then Basic only.

Regards,
Kamesh

Gratuity is always to be computed based on the last basic pay plus the dearness allowance admissible on it. To be specific, if an employee happens to pass away on a certain date on which he receives his annual increment and a rise in his dearness allowance, then the gratuity is due at the last basic pay with the increment earned, along with the increased rate of dearness allowance on that basic.

Thanks & regards,

Gratuity is to be calculated on the Basic and DA/VDA last drawn by the employee, i.e., on the salary at the time of leaving. The formula is Last drawn Basic + DA/VDA × No. of years of service × 15/26.

Regards,
D. Phani Kumar
DGM- HR
VASAVADATTA CEMENT.

Gratuity Calculation Clarification

What Mr. Phani Kumar is suggesting is correct. However, when calculating the gratuity, if the number of years of service exceeds 6 months by even one day, you have to calculate the gratuity for the next year. For example, if an employee has worked for 6 years, 6 months, and 2 days, they are eligible for 7 years of gratuity. If the employee works for 6 years, 6 months, or less, they will only receive 6 years of gratuity.

Regards,
Srinivas
Manager - HR

Please correct me if I am wrong. The maximum gratuity payable should not exceed one year's salary.

Dear Sebastinss, can you please help me know whether the Gratuity eligibility criteria for the number of years is still 4 years and 240 days, or has there been any change?

Regards,
Neelam

Dear All, please let me know, during gratuity calculation, why the formula considers 26 days (Basic + DA) instead of 30 days. If you are excluding 4 days off, resulting in 26 days, then why is the calculation based on 15 days and not 13 days (considering half a month with 26 days as a full month)?

Current Maximum Limit

What is the current maximum limit from an IT point of view and in general?

Regards, Sanjeev

Maximum Ceiling for Gratuity Payment

The maximum ceiling for the payment of gratuity under the Payment of Gratuity Act, 1972, with effect from 24/05/2010, is Rs. 10 lakh. Prior to 24/05/2010, it was Rs. 3.50 lakh.

Dear all, the maximum limit for the payment of gratuity is Rs. 3,50,000/-. Instead of 30 days, 26 days were considered because the calculation is done based on working days, which is 26, not 30 or 31 days. The eligibility criteria should be the completion of 5 years. Continuous 4 years + 240 days will be considered as 5 years.

Thanks & Regards,

Sumit Kumar Saxena
[Phone Number Removed For Privacy Reasons]

No, the maximum gratuity payable limit has increased to ₹10 lakh. Earlier, the ceiling was ₹3.5 lakh.

Thanks.

Dear Shri Sumit Kumar Ji, Please confirm the maximum ceiling of gratuity. It has been increased to Rs. 10 lakh from 24/05/2010 by an extraordinary gazette notification.

[QUOTE=mukherjee.jit;1679030]Dear Sir, Can anyone please suggest how to calculate gratuity? Also, I would like to know how the basic + DA should be considered when calculating gratuity. For example, if a person has been working in an organization for the last seven years and their basic salary keeps changing over time, which basics will be considered at the time of leaving the job?

Gratuity Calculation Formula

The formula for gratuity calculation is: Last basic drawn / 26 * 15 * No. of completed years of service. Gratuity is provided after completing five years of continuous service.

Regards, Ganesh Manager-H.R

Gratuity is to be calculated on the Basic and DA last drawn by the employee, i.e., on the salary at the time of leaving. The formula is Last drawn Basic + DA × No. of years of service × 15/26.

Example:

- Date of joining: 7.06.2005
- Date of leaving: 19.09.2011
- Service: 6 Years 3 Months 0 Days
- Basic Wages + DA: 15850 per month
- Total Lop: NIL

Gratuity Workings: 15850 × 6 yrs × 15/26 = Rs. 54865/-

Regards,
S. KARTHIK - HR

As per the revised law, the maximum gratuity payable is Rs. 10 lakh (more can be paid if not mentioned in the contract but will be taxable). It should be calculated on Basic + DA of every year individually (as per the Gratuity Act), but companies usually take the Basic + DA of the present year.

Re-Gratuity

The Basic + DA taken as last drawn on the date of relieving. Calculation will be as follows: Salary last drawn (Basic + DA) * 15/26 * number of years served. The amount of Gratuity will be calculated as above or Rs 10,00,000/- whichever is less.

Thanks,
G.S. Saini
Cost Accountant
G.M. Finance
COATEC INDIA

Dear Members,

Please find attached the file for the Calculation of Gratuity. Could you please confirm how a person can be eligible to avail the 6th Year's Amount?

Thank you.

Gratuity Calculation According to the Gratuity Act of 1972

As per the Gratuity Act of 1972, gratuity is not more than Rs. 3,50,000. The formula for calculation is the last drawn salary multiplied by 15/26, then multiplied by the number of years of service.

Regards,
G. Rajkumar
HR Assistant
Yuvaraj Power Projects Ltd.

I think gratuity calculation is based on the formula: basic * 15 * 26 * number of years of service. Is this correct?

Regards,
Rajesh

Dear all, as per the request, please find the points below as per the Gratuity Act of 1972 for your reference.

Gratuity Formula

Gratuity Formula: Basic + DA. This means you only need to mention the current month's Basic + DA, multiplied by 15, then multiplied by the number of years worked, divided by 26.

Eligibility for Gratuity

The eligibility for Gratuity is 5 years of continuous service. In case of death, only the actual years worked need to be considered.

If an employee has worked for more than five years, you must calculate their total working days. If an employee has worked less than 240 days in the current financial year, adjustments need to be made for their leave, etc., based on the act's provisions. If an employee has worked more than five years and more than six months in the current year, their total eligible years would be considered as 6 years.

The maximum payable Gratuity amount is Rs. 1,000,000 (Ten Lakh).

I hope this clarifies any doubts.

Thank you,

Yogeesh

Gratuity Calculation Query

Salary, whatever it may be, but the gratuity amount is less than or equal to ₹3.60 lakhs. Is there any correction? Please inform me.

Is it necessary that the employment period should be more than 5 years or equal to 5 years? If an employee leaves the job before 5 years, will he be eligible to get the gratuity?

Gratuity Calculation Formula

Current salary divided by 26, then multiplied by 15, and again multiplied by the number of years worked.

Components of Current Salary

- Current Salary = Basic + DA
- 26 = Working days in a month except Sunday
- 15 = Gratuity payable for the number of days in a year

Eligibility for Gratuity

Number of Years Worked: After working for 4 years, from the 5th year onward, if worked for more than six months, then you are eligible for the full year.

Gratuity Calculation Formula

The formula is:

Last salary drawn (Basic + DA + IR (Interim relief if any)) × 15 × number of years of service / 26. Years calculation shall be based on the months served, with six months or more being considered as one full year.

Maximum Ceiling of Payment of Gratuity

The maximum ceiling of payment of gratuity is Rs. 10 Lakhs.

Regards, Lokanadha Babu Narra, Manager H.R.

Gratuity Calculation Guidelines

Gratuity is paid after the completion of 5 years of continuous service. It is calculated based on the formula: (Last Drawn Salary (Basic + DA) / 26) * 15 * Number of Years. If the number of months is a fraction above six months, round off to the next month. For example, if the service period is 6 years and 6 months, round off to 7 years.

The maximum gratuity allowed under Income Tax Exemption is 10 Lakhs for the entire service period. If your company is not registered under the Gratuity Act, then rounding off is not required, and you can pay for 6.6 years.

Regards

You can calculate gratuity as (DA + BASIC) / 26 x 15 x years of service. However, in some cases, the company provides 17 days of gratuity.

Regards,
RBS

Dear All, Can anyone help me in elaborating on the Act/Rule of Gratuity? Suppose it is mentioned that "You will not be entitled to Gratuity" in any appointment letter, will it be considered? If the complete break-up of CTC is given in the Appointment Letter, can any company mention that Gratuity is included? I need a perfect justification on this matter.

Thank you.

Gratuity as an Employee Right

It cannot be stated that gratuity is not a right of an employee. Hence, no company can mention in the appointment letter that the employee is not entitled to gratuity.

Gratuity in CTC

Yes, gratuity can be included in the CTC. It will be 4.81% of the Basic and DA/VDA. Many companies are including gratuity in the CTC.

Regards,
D. Phani Kumar
DGM-HR
Vasavadatta Cement
(A Unit of B.K. Birla Group of Companies)
Sedam, Gulbarga Dist.
Karnataka.