Gratuity Calculation Confusion: How to Count Partial Years for Long-Term Employees?

Dear all friends,

All are known Gratuity Calculation, Basic+Da / 26* 15 * NO. OF YEAR. The problem lies with the number of years.

1. Employee experience year is 26 years 8 months 18 days. What should be done? How many years can I take?

2. Employee experience year is 27 years 4 months 14 days. What should be done? Please provide the number of years for both queries.

Thanks in advance.

Hi,

Employee experience year is 26 years, 8 months, and 18 days. What should I do? You can consider this as 27 years.

Employee experience year is 27 years, 4 months, and 14 days. What should I do? You can also consider this as 27 years.

Regards,
Surender

Sorry, Surender, but the second answer is incorrect, dear. If there is duty under 6 months, then consider the previous year.

For eligibility for gratuity, an employee has to complete 5 years of service. After that, if any employee worked for more than six months at the time of the settlement, it is considered as one year. If an employee works for less than six months, it is to be ignored. Hence, Surendar's answer is correct (where the experience is 27 years 4 months 14 days), then it is 27 years.

T. Mahendar Reddy

Hi Friends,

What about the maximum limit? I think we have something like this when it comes to Gratuity amount. Let me know about this.

Regards,
Amith R.

Hello Amit Murty,

The amount of gratuity payable shall be at the rate of 15 days' wages based on the rate of wages last drawn (Basic - DA), for every completed year of service. If the fraction of a year is below six months, it is to be ignored; if it is above six months, it will be treated as one year. The maximum amount of gratuity payable is Rs. 3,50,000/-.

Hello Amit Murty,

A small typographical error, please ignore the above reply.

The amount of gratuity payable shall be at the rate of 15 days' wages based on the rate of wages last drawn (Basic + DA), for every completed year of service. If the fraction of a year is below six months, it is to be ignored; if it is above six months, it will be treated as one year. The maximum amount of gratuity payable is Rs. 3,50,000/-.

Gratuity payable is not subject to any maximum limit under any law. For instance, if the calculation shows a gratuity payable of Rs. 5 lakhs, the employee is entitled to the full amount. However, only Rs. 3.5 lakhs will be considered as a tax-free payment, and tax will have to be borne on the remaining Rs. 1.5 lakhs.

Jeroo

An employee who is dismissed, is eligible for gratuity benefits. If the dismissed employee has received the gratuity cheque, what does this imply? Can anyone provide clarification?

What Mr. Surender has provided is absolutely correct. When calculating the number of years in service, it should be noted that each six-month period should be considered separately.

Regards,

R. Parthasarathy

Hi all,

I don't know how to calculate the gratuity. Which basic can I take - is it the last basic, the first basic, or the basic from every year? Please help me out.

Bye!

Hi all,

In cases other than a government employee, gratuity is exempt on the following basis:

Any gratuity received under the Payment of Gratuity Act is exempt to the extent of the least of the following:
- Rs 3,50,000
- 15/26 x last drawn salary for every completed year of service or part of the year in excess of six months, or
- Gratuity actually received

Salary for this purpose means basic salary and dearness allowance.

Any other gratuity received by an employee/legal heirs on retirement, termination of services, death, etc., is exempt to the extent of the least of the following:
- Rs 3,50,000
- Half month’s salary (on the basis of the last 10 months average) for each completed year of service (fraction to be ignored)
- Actual gratuity received

Salary for this purpose means basic salary, dearness allowance, if provided in terms of employment, and commission as a percentage of turnover achieved by the employee.

Where a person is covered by the Payment of Gratuity Act, the exemption is available only if he has rendered continuous service for a period of five years, except where the cessation of employment is due to death or disablement of the employee.

Also, according to the Income Tax Act 1961, if the company is covered under the Payment of Gratuity Act, then the Days/Month Fraction is added as the next year. Hence, the 240 days come into contention when calculating the gratuity amount. Thus, if the person has completed 240 days in the last year of employment, then it must be counted as the next year; if less than 240 days in the last year of employment, then it has to be the previous year. For example, 6 years 241 days is 7 years and 6 years 200 days is 6 years.

Also, the year is calculated from his joining date, for example, 1-5-1999 to 30-4-2000 would be a year.

Hope the above is a sufficient message or post in case of queries.

Regards,
AJ

Hi AJ,

I need a bit more clarification about the 240 days part in your post. If I have completed 4 full years of service and have completed 240 days in the 5th year, after which I leave the organization, will I be eligible for gratuity, right? Does this 240 days exclude or include weekly offs, paid leave, and public offs?

Thank you for your time in advance.

Emereen

Hi Friends,

Yes, the Gratuity limit is 3,50,000/-, but you can pay more as Ex-gratia. The Sixth Central Pay Commission has requested the Government to increase this limit up to 10 lacs.

Thanks

Hi Emereen,

If you have completed 4 years and 240 days, you do become eligible for gratuity.

The 240 days includes weekly offs and government or public holidays since they are considered working days by companies registered under the Gratuity Act.

The following are the terms and definitions of "continuous service":

"Continuous Service" means uninterrupted service and includes service that is interrupted by sickness, accident, leave, lay-off, strike, or a lock-out or cessation of work not due to any fault of the employees concerned, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

Explanation I: In the case of an employee who is not in uninterrupted service for one year, he shall be deemed to be in continuous service if he has been actually employed by an employer during the twelve months immediately preceding the year for not less than:
(i) 190 days, if employed below the ground in a mine, or
(ii) 240 days, in any other case, except when he is employed in a seasonal establishment. Explanation II: An employee of a seasonal establishment shall be deemed to be in continuous service if he has actually worked for not less than seventy-five percent of the number of days on which the establishment was in operation during the year.

"Controlling authority" means an authority appointed by an appropriate Government under Section 3.

"Family," in relation to an employee, shall be deemed to consist of:
(i) in the case of a male employee, himself, his wife, his children, whether married or unmarried, his dependent parents, and the widow and children of his predeceased son, if any,
(ii) in the case of a female employee, herself, her husband, her children.

You can follow this link for further legal proceedings that have been undertaken by individuals.

[Gratuity Act 2000](http://nipmkerala.org) (link updated to site home) ( [Search On Cite](https://www.citehr.com/results.php?q=Gratuity Act 2000) | [Search On Google](https://www.google.com/search?q=Gratuity Act 2000) )

Hope the above was sufficient.

Regards,

AJ

Dear seniors,

I want to know what the formality is to register a company under the Gratuity Act. When can we send someone Form F? Is there any time limit or not? Is there any return related to the Gratuity Act?

Thank you for your kind response.

Paveen

Hi Friends,

I agree with Mr. Surender's reply. Furthermore, the maximum limit of gratuity is INR 350,000. However, if an amount higher than this is agreed upon by the employer, it will attract taxes for any amount above INR 350,000.

Deepak

Hi Emereen,

Please arrange to follow the link or inform me which amendment you are looking for. I can forward it to you.

Regards,
AJ

Hi friends,

I am having some difficulties in the interpretation of the clause "Continuous service" and "applicability of gratuity". Suppose one of the employees joined on 01/11/2003 and resigned on 30/11/2008, which means after 5 years of service. Here, I wish to draw your kind attention. What happens if the employee remained absent during these 5 years with some intervals, which caused non-completion of one year of continuous service [every year he did not complete 240 days of actual working]? Should I pay him gratuity, or is he not entitled to gratuity? Even if he was on our muster roll for a period of more than 5 years. Please help me.

Kishor

Hi Sowmya,

Max Newyork Life is an insurance company, so you might know how to calculate the actuarial valuation. Could you please send me the method to calculate the actuarial valuation?

Thanks & Regards,
Kishor