Understanding Gratuity Deductions: How Much Should Be Taken from My Monthly Salary?

Can anyone tell me how much amount should be deducted for gratuity in a month? My gross salary is 15,000 per month.

Regards,
Rajesh

It depends on how much you are earning in a month. How can we tell without knowing your salary?

Dear friend,

Gratuity is the amount to be paid to the employee by the management upon completion of 5 years of uninterrupted service; hence, there is no question of any amount from the employee, like the deductions we will be making towards ESI, PF, PT, and Labour Welfare Fund.

Thanks and regards,
Kamesh

Thanks for the information. But I would like to know, do you pay the employees a one-time gratuity upon completion of 5 years, using the gratuity formula, or do we contribute monthly? If we contribute monthly, like 250 or 500 rupees based on the salary, it would be easier, right?

Dear Rajesh, there is no question of a monthly payment, not even upon completion of 5 years. An employee is eligible for gratuity only if they have completed five years of continuous service or more when leaving the company. Even if you work for 4+ years, you are not entitled to the gratuity amount.

In the above circumstances, it is not possible to pay on a monthly basis. According to the law, payment is only made after the completion of 5 years of continuous service.

Regards,
Kamesh

If it is for CTC calculation on gratuity, then it will be 4.81% of one's monthly basic. Please post your question clearly.

Regards,
S. Sethupathy
Excellent HR Services.

I see companies paying gratuity after 2 years of service. How come they do such things when it is not the act to do so?

From your clarification, I understand that Gratuity would be paid after the completion of 5 years, right? Now, suppose my gross salary is 25,000, and I have completed 5 years of active service. Will the company pay me a lump sum amount, e.g., 70-80K at once?

Dear Rajesh, please go through my posting very carefully. If you are continuing in the same company after completion of 5 years, then you won't get anything. However, when you have resigned and are leaving the company, you will receive your Gratuity amount. That is, after 20 years of continuous service, if you are leaving the company, you are eligible for that amount, and the maximum limit is raised to 10 lakhs.

Gratuity Payment Policies

Another query you have is that some companies pay gratuity after 2 years of service. The management/companies can also pay on a daily basis on various heads like Gratuity, ex-gratia, production bonus, etc., if they have the necessary funds. However, the Gratuity under Statute should be paid to the employee at the time of leaving the organization after completion of 5 years of continued service.

I hope this clarifies things for you.

Regards,
Kamesh

Please be very clear that NO DEDUCTIONS are to be made from your Gross Salary towards Gratuity. If it is being done in your organization, it is illegal.

Gratuity is payable by the employer to an employee who has completed at least 5 years of continuous employment, at the time of leaving the Company.

Regards,
Vasant Nair

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Can anyone tell me how much amount to be deducted for gratuity in a month? My Gross salary is 15,000/M.

Regards,
Rajesh

Understanding Gratuity Payment Under the Gratuity Act

It is acceptable that, as per the Gratuity Act, after the completion of 5 years of uninterrupted service, the employee will receive gratuity. However, if the management wishes, they may provide it after the completion of 2 years as well (for this, they have to pass a resolution with the insurance company).

For the CTC Circle, gratuity may be added up (this amount should be purely from the employer's side). Whatever the gratuity amount is reimbursed (> 5 years or as per resolution) is paid by the employer annually as a renewal of the premium amount to the insurance company.

Gratuity Formula

The gratuity formula is given below:

- Last Basic + DA (e.g., Rs. 10,000/-) i.e., Rs. 10,000 X 15 Days X 5 (No. of years of service) / 26 Days = Rs. 28,846/- (Total amount for 5 years of service)
- Rs. 5,769/- (For 1 year)
- Rs. 481/- (For 1 month) i.e., at the rate of 4.81% {Some companies may add this for the CTC Circle}.

If any information is missed out or you want to add more, please let me know.

Thanks & Regards,
Avinash Kumar.K

Kamesh,

Thanks for the information. But I would like to know, do you pay a one-time gratuity to employees upon completion of 5 years using the gratuity formula, or do you contribute monthly? If we contribute monthly, like 250 or 500 rupees based on the salary, it would be easier, right?

Are you an employee from whose salary contribution towards gratuity is deducted, or an HR professional deducting contributions from employee salaries towards gratuity? I wonder if your company is operating in violation of service laws!

Regards

I see companies paying gratuity after 2 years of service. How come they do such things when it is not the right thing to do?

Understanding Gratuity Payments

The Payment of Gratuity Act clearly states that if the company's terms are more beneficial than the provisions of the Act, an employee has the right to receive those benefits. Companies are allowed to provide gratuity even before an employee completes 5 years of service.

The Act sets the minimum standard that companies must adhere to, ensuring they do not offer benefits lower than what is mandated by law.

Eligibility for Gratuity

Now we know that a person who has completed 4 years and 9 months of service is eligible for Gratuity. However, the calculation of the exact amount can vary based on the company's policy and the applicable laws in your region. Generally, gratuity is calculated as follows:

- Gratuity = (Last drawn salary × 15 × Number of years of service) / 26

It's important to note that the "last drawn salary" typically includes basic salary and dearness allowance. For precise calculations, consulting with your HR department or referring to the specific gratuity policy of your organization is advisable.

Regards

I agree with Mr. Vasant Nair. There are NO deductions from the Gross for Gratuity. However, the CTC may include the Gratuity element - 4.81% (or rounded off to 5%) of the Basic Pay.

Regards,
Rajusiachen

Kindly let me know if the gratuity amount is tax-exempt or not. Also, is it necessary to deduct 4.81% from the monthly salary in the Cost to Company (CTC)?

Thanks & regards,

It will be calculated as per: (last drawn Basic Salary/26*15) * No. of Years worked. Any employee should have to work for at least 4 years & 240 days.

Regards,
Manoj Garg
[Phone Number Removed For Privacy Reasons]

Gratuity Calculation in CTC

If gratuity is part of the CTC, then it is 4.81% of the basic salary. Currently, the gratuity limit is Rs. 10 lakhs.

Thank you.

Understanding Gratuity Payments

Gratuity is the amount to be paid to the employee by the employer upon completion of 5 years of uninterrupted service, retirement, or retrenchment. In case of death before completing 5 years of service, it will be payable up to the date of death.

If your employer wants to plan for gratuity, ask them to set aside 4.81% of the basic salary plus dearness allowance wages every month or consider opting for a Gratuity Policy from an Insurance Company.

Regards,
RA LAWANDE

I would like to inform you of one thing: gratuity calculation is made only on the last Basic + DA amount when an employee leaves the organization after completing 5 years. Generally, the accounts department includes some amount as gratuity in their balance sheet to receive tax benefits, but there is no deduction from the employee's side. For better clarification, kindly refer to the Gratuity Act.

Regards,
Ratikanta Rath

Understanding Gratuity Deductions

There is no deduction that can be made for gratuity. It is given in gratitude to an employee for serving a company after completing five years of service in an organization. Gratuity is paid by the employer, which amounts to fifteen days' salary of the basic pay for every completed year. Therefore, there is no such deduction.

Nowadays, companies are following the Cost to Company (CTC) model, which includes everything they provide to an employee. However, this can be negotiated by an employee with the company when joining any organization, and it varies from company to company.

Regards

It is assumed that your reply is in connection with the attached gratuity calculation sheet. First of all, thanks for your comments. In the policy of Gratuity, it is clearly mentioned in every company's policy that after 5/3/1 year(s), the company fixes the maturity of gratuity. "Regular staff of the company will be entitled to gratuity equivalent to one month's Gross salary per year after completion of ____ years of service. After this, I don't think if a person is absent for about 100 days in a year, they can meet the full-year gratuity for that year.

Secondly, you are requested to please share your knowledge regarding "CTC" in detail, as I don't know about it. Thanks for your cooperation in advance.

Regards,
Kashan

I found your answer very easy and simple to understand, especially the calculation part. I am very thankful to you and all who posted their comments. Thanks to Cite HR. Thanks to everyone.

Regards,
Rajesh.N

Mr. Kamesh,

How is it possible to accumulate all years of gratuity in accounts? How will you satisfy your auditor to book any employee's 5 years of gratuity after the completion of the 5th year?

Could you please elaborate on this?

Thanks in advance.

Kashan