Understanding Gratuity: Can It Include Allowances Like HRA, CA, and MED?

Can gratuity be calculated on allowances like HRA, CA, MED, etc.? Yes, gratuity can be calculated on various allowances such as House Rent Allowance (HRA), Conveyance Allowance (CA), Medical Allowance (MED), etc. These allowances are typically included in the calculation of gratuity as they form part of the employee's overall compensation package. Gratuity is usually calculated based on the basic salary plus dearness allowance, and in some cases, it may also include certain allowances like HRA, CA, and MED. It's important to refer to the company's gratuity policy or the governing laws to understand how these allowances are considered in the calculation of gratuity.

Hi, I hope you are well. I have received your question regarding the calculation of gratuity on various allowances such as HRA, CA, and medical, etc.

In general, gratuity is calculated based on the basic salary of an employee and does not usually include allowances like HRA, CA, or medical allowances. These allowances are typically not considered for gratuity calculations.

If you have any further questions or need clarification on this matter, please feel free to ask.

Thank you.

Hi, For the calculation of gratuity, salary includes only Basic salary and Dearness Allowance (DA). There won't be any other components considered for the calculation of gratuity.

In our country, the original salary structure consisted of Salary (such salary was called Basic Salary) plus D.A. (Dearness Allowance), wherein payment of D.A. was directly linked to the Consumer Inflation Index and was variable. Therefore, all attendant benefits like Provident Fund, Employees Insurance, Gratuity, and Bonus were attached to the Basic Salary.

The same practice was adopted by the private sector but replaced D.A. (Dearness Allowance) with Special Pay.

Thereafter, HRA (House Rent Allowance) was made exempt under the Income Tax Act with certain conditions. HRA between 10% and 40% of Basic Salary (in the case of Metro Cities) and between 10% and 30% of Basic Salary (in the case of Other Cities) was made exempt if the employee is staying in rented accommodation and is paying rent equal to or more than that.

Similarly, later on, Conveyance Allowance of Rs. 1600/- per month was also made exempt under the Income Tax Act. Therefore, the special pay was further split into HRA, Conveyance Allowance, and Special Pay.

As payments other than Basic Pay plus D.A. are all under the category of allowance, gratuity shall be payable on Basic Pay plus D.A. only and not on any other allowance, in whatever name called or spelled. Even in the above, special pay is also not included in basic pay for the calculation of Gratuity.

Regards, Jawaharlal Moondra
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