Gratuity Calculation- 4.16% Or 4.83% ??? - XLS Download

Hello friends,
It might be useful for you for calculation of Gratuity while working out CTC. Till now we too were calculating gratuity @ 4.16% which is wrong because we assume a month to be comprised of 26 working days and not 30 days while calculating Gratuity.
GRATUITY SHOULD BE CALCULATED AT 4.16% OR 4.83%

LOGIC BEHIND 4.16%

15 DAYS SALARY FOR 1 YEAR
OR
0.5 MONTHS SALARY FOR 1 YEAR
OR
0.5*5=2.5 MONTHS SALARY FOR 5 YEAR
OR
2.5 MONTHS SALARY FOR 60 MONTHS (12 X 5)

NOW 2.5 IS HOW MUCH %AGE OF 60 ?

2.5 X 100/60 = 4.16%

SO GRATUITY IS PAYABLE @ 4.16% WHICH IS WRONG RIGHT CALCULATION IS AS FOLLOWS:

LOGIC BEHIND 4.83%

15 DAYS SALARY FOR 1 YEAR
MONTH IS COMPRISED OF 26 WORKING DAYS NOT 30 DAYS
IT MEANS 57.69 % OF MONTHLY BASIC IS PAYABLE (15*100/26)
OR
0.58 MONTHS BASIC FOR 1 YEAR
OR
0.58*5 MONTHS BASIC FOR 5 YEARS
OR
2.9 MONTHS BASIC FOR 60 MONTHS (12 X 5)

NOW 2.9 IS HOW MUCH %AGE OF 60 ?

2.9 X 100/ 60 = 4.83 %

HENCE GRATUITY SHOULD BE CALCULATED @ 4.83% AND NOT 4.16%
Amit Goyal

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

Hi Naresh,
You are absolutely right. But this is how we calculate Gratuity amount at the time employee leaves the organization after putting in atleast 5 years.
But How will you calculate the gratuity for the calculation of the monthly CTC of an employee at the time he/she joins the organization. I too used the same formula that you advised but for the calculation of the monthly CTC not the consolidated Gratuity amount. You probably misunderstood the things.
Amit Goyal

Hi Amit,
When you intend showing the Gratuity Amount as a part of CTC of an emloyee at the time of joining, then in my view, you can not do the calculation based on 60 months. If you do , you are telling that new joinee will not get any salary increment for the next 5 years !! Moreover, if the employee leaves after 60 months, you will have to calculate his gratuity on the Last Salary Drawn. Therefore, to keep the matter simple and logical, we should calculate the gratuity as 4.16% on the salary being offered at the time of joining.
Please let me know your comments.
Regards,
Naresh Taneja

Dear Amit,
Since in your original post you had mentioned the figure of 4.16 , I referred to that. Otherwise, if one calculates the Grautuity as I had suggested, it would work out to 4.8% . I have made a sample CTC and its break up and attaching the same for your info please. One may modufy it to add other provisions for maximising Income Tax rebates.
Regards,
Naresh Taneja

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 ?

May i raise the question that gratuity is given after retirement so what sort of this contribution to the ctc as this is deducted from gross so what is the requirement to deduct as we contribute to the pf so the gratuity is also contributed? i m so confused coz i give the plain salary structure which includes basic,hra,conv.,special allowance thats it .

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

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.

Dear Naresh
One doubt after completion of 5 years of continuous service Is it mandatory for the employer to pay Gratuity to employee for next continuous service once employee claimed it after completion of first 5 yrs of service.
Regards
Suman.A.V.K