Understanding the Gratuity Act in Maharashtra: How Is It Calculated?

Dear sir,

I would like to know about the Gratuity Act and the calculation formula in India (Maharashtra).

Payment of Gratuity Act, 1972

Object: It is an Act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, and shops or other establishments.

Applicability: Any Employer of the above-noted establishments where 10 or more persons are employed or were employed on any day of the preceding 12 months is liable to pay gratuity to its employees. Once the Act becomes applicable, it continues even if the number of employees falls below ten.

Entitlement: Gratuity is payable to an employee (nominee - in the case of death of an employee) who has rendered continuous service of five years or more on his termination of employment, superannuation, retirement, or resignation. Completion of continuous service of five years is not necessary where the termination of employment is due to the death or disablement.

Calculation: W x Y x 15/26 where W = Last Wage drawn i.e., basic + DA
Y = number of completed years of continuous service (six months or less to be ignored and more than six months to be counted as a full year.)
15 = 15 days salary
26 = Number of working days in a month.

Maximum Limit: Rs.3.5 lacs. (w.e.f 24-09-1997)

Time Limit for application to employer: The employee has to make an application in Form-I to his employer within 30 days from the date the gratuity becomes payable.

To calculate the gratuity: it has the formula



Ex. Number of years of service x Last salary drawn (Basic+D.A) X 15
26

This is the formula to calculate the gratuity.

We had one employee who was asked to leave the company in 2005. At that time, we did not calculate the gratuity properly out of ignorance (not based on the last wages but the average of wages over 10 years). He went to court to seek justice. We now know that the gratuity was not calculated properly.

He never made an application in form-I as mentioned in the post above. Can we now ask him to make an application and close the issue?

To calculate gratuity, use the Gratuity Calculator on the following site: [Calculate Gratuity](http://profit.ndtv.com/Calculators/gratuity.htm).

S. Newton Jenkins

Hi,

I have a doubt: In a 5-year period, if a person has 11 months of LOP, how should it be calculated?

Regards,
Pushparaj

Hi Loveleen,

I am new to this organization. Could you please explain to me how we will calculate gratuity for different CTC?

Regards,
Loveleen

I would like to know about the basic wages of skilled, semi-skilled, and unskilled workers in Maharashtra.

Hi Newton Jenkins,

Could you please send us the other calculators as mentioned in the same sheet?

Regards,
vsure

Formula for Gratuity:
Current Basic * Length of service * 15 / 26

Gratuity is payable when an employee completes his/her length of service of 5 years in the same organization.

Regards,
Meera

Hi there,

I have worked in the company for 4 years now, including 1 year of training and 1 year of probation. I would like to know if I am eligible for availing the gratuity and what the procedure for the same is. Please guide me about it. I don't think my company is giving me the gratuity when I'm leaving the company. So, I need to know how to avail it as it has been deducted every month from my pay for the last 4 years, including my training period. Am I eligible for the gratuity, or do I need to complete 5 years to avail the gratuity? I'm confused because they deduct the amount from the beginning, but when it comes to returning it, they require a minimum of 5 years.

I am awaiting your reply at the earliest.

Hi,

I've got a doubt. Is there any government authority for managing Gratuity, or is it dealt with directly by the company itself like how PF management is done by RPFC?

Hello,

Our organization doesn't provide any gratuity even though there are more than 10 employees currently. Is there anything we can do about it?

Thank you.

Dear Member,

Please approach your area labor office for proper enforcement of this law pertaining to the payment of gratuity. It might be possible that none of the employees have become eligible to receive gratuity from the employer under this Act.

With Regards,
R.N. Khola

Hello,

Our organization doesn't provide any gratuity even though there are more than 10 employees at present. Is there any action we can take regarding this?

Thank you.

New Delhi, Mar 3: In a major relief to private sector employees, the Union Cabinet on Thursday, Mar 4, has given its consent to increase the gratuity limit from Rs 3.5 lakh to Rs 10 lakh.

I have a doubt about an extra month. How do you calculate gratuity if a person works for 6 years and 5 months? And what if they work for 6 years and 7 months? Please suggest.

New joiner, whose age is 55 years old, and retirement age is 58, is eligible for gratuity upon retirement (after 3 years of joining).

No, in this case, this new joiner will not be eligible to receive gratuity from the employer.

Regards,
R N KHOLA

I am confused regarding this issue: if an employee has served in an organization for 5 years and 8 months, is their period of service considered to be 6 years?

Gratuity Calculation Query

When calculating the gratuity, in the formula (number of years served), do we need to consider 6 years or just one year (as after completing 5 years, one additional year has been completed)? Kindly help me clarify this matter.

Thank you.

Gratuity calculation
= (Salary / 26) x 15 x Number of years in service
Where;
Salary is “Last drawn basic pay + DA”
26 is the average working days in a month (As per Gratuity rules – 26 days not 30 days calculated)
15 is the actual days considered for gratuity in a year
Source: http://onerupee.net/calculate-your-gratuity-in-india/

Query: If an employee has completed 5 years with the same organization but has received thrice increment in that duration, and his basic was revised each time, can we calculate his gratuity based on the number of years * basic or should we directly calculate it for the 5 years with the current basic as he is currently drawing? Please guide.

The formula for gratuity is calculated as follows: salary/26 * 15 * number of years of service. The salary refers to the current basic pay. I hope this explanation is clear.

Hi team,

Thanks for the lovely info. I am in my current organization, where fortunately or unfortunately, I am leaving my current position exactly after 4.7 years (including my last working day). Could anyone please tell me if I would be able to apply for my gratuity?

Thank you.

I joined GTL Limited in India on 1st June 2008. On 16th June 2008, GTL sent me to Tanzania. My salary was paid from there, and they stopped my Indian salary even though they sent me on deputation. In July '10, I returned to India. In July '10 and August '10, they paid me 70% as a salary advance. The salary paid was decided at the time of joining. Later, they sent me to Nepal in September '10. I was paid by GTL Nepal during my time there. I worked in Nepal until 15th July '12. On 16th July '12, I was sent to Myanmar and continued working until June '15. The HR department requested me to resign from GTL India, and I submitted my resignation letter on 23rd June 2015.

My Questions

1. Am I eligible for Gratuity?
2. Which salary will be considered as the last drawn salary?

Please reply to me. Thank you.

Regards,
Soumen Das

The moment you complete your 5 years from the DOJ, you are eligible for gratuity. Hence, if you joined in 2008 and left in 2015, yes, you are eligible for your gratuity.

Hi,

You can use the link below for the calculation of gratuity:

[Gratuity Calculator: Online Gratuity Calculator to find the Gratuity](http://www.moneycontrol.com/personal-finance/tools/gratuity-calculator.html)

Gratuity and Its Calculation

Gratuity is a benefit received by an employee for services rendered to an organization. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer. An employee receives gratuity when they resign, retire, or are laid off. In the case of death or disablement, there is no minimum eligibility period.

How Gratuity is Calculated

The gratuity amount depends upon the tenure of service and the last drawn salary. It is calculated according to this formula: Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26. According to this formula, a time period of over six months or more is considered as one year. This means if you have completed five years and seven months of service, the number of years would be considered as six years for the calculation of gratuity benefit. On the other hand, if the service period is five years and five months, for gratuity calculation, it will be considered five years. An employer can, however, give higher gratuity than the amount under the prescribed formula.

Maximum Amount

For government employees, Rs. 20 lakh is the maximum amount that can be paid as gratuity. The Seventh Pay Commission had recommended an increase in the gratuity ceiling to Rs. 20 lakh from the earlier level of Rs. 10 lakh.

Income Tax Treatment of Gratuity

For government employees, the entire amount of gratuity received on retirement or death is currently exempted from income tax. In the case of non-government employees, income tax rules on gratuity are applicable depending on whether employees are covered under the Payment of Gratuity Act, 1972 or not.

For non-government employees covered under the Gratuity Act, the income tax exemption on any gratuity received is the least of the following:
- Maximum amount specified by the government, which is currently Rs. 10 lakh
- Last drawn salary X 15/26 X years of service
- Actual gratuity received

For example, the last drawn salary (basic plus DA) of Mr. Ashish is Rs. 60,000 (per month) and he has worked for 25 years. The gratuity according to the formula is Rs. 8.65 lakh, but suppose he has actually received gratuity of Rs. 12 lakh. So for income tax calculation, Rs. 8.65 lakh will be considered for exemption. Mr. Ashish will pay tax on Rs. 3.35 lakh (Rs. 12 lakh - 8.65 lakh).

For non-government employees not covered under the Payment of Gratuity Act, the income tax exemption on any gratuity received is the least of the following:
- Half month's average salary for each completed year of service
- Maximum amount specified by the government, which is currently Rs. 10 lakh
- Actual gratuity received

(Average monthly salary is to be computed on the basis of the average of salary for 10 months immediately preceding the month (not the day) of retirement)

For example, the last drawn salary (basic plus DA) of Mr. Bhupesh is Rs. 70,000 and he has worked for 35 years. The gratuity according to the formula is Rs. 12.25 lakh and he has received this amount as gratuity. For tax purposes, Rs. 10 lakh would be considered as the exemption limit as it is the lowest of the three factors. Mr. Bhupesh will have to pay tax on Rs. 2.25 lakh (Rs. 12.25 lakh - Rs. 10 lakh).

Why do we use 26 days to calculate the gratuity if the employee's basic salary is fixed for a month, whether it is for 30 days or 31 days?

Gratuity Calculation in India

Gratuity is one of the main components of retirement benefits provided to an employee. The formula to calculate gratuity is: (Number of years of service) * (Last drawn monthly Basic and DA) * 15/26. Here, DA stands for Dearness Allowance, which is a cost of living adjustment for pensioners. For example, if you have served 30 years and draw a monthly Basic and DA of Rs. 50,000 when you leave the job, you would receive a gratuity of Rs. 8,65,385 calculated as (30 * 50,000 * 15/26).

If you want to know more, visit https://hrone.cloud/how-to-calculate-gratuity/.