Hi Anybody else let me know when gratuity applies to an employee in an organization. And how the gratutuity is calculated. Regards Kirubakaran.
From India, Madras
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From India, Madras
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FYI
Payment of Gratuity Act 1972
What is Gratuity?
Gratuity is a payment received by the employee from the employer on retirement, or on death, or on resignation, after completion of 5 years of service.
Why is Gratuity paid?
Gratuity payment is made by the employer as a mark of recognition of the service rendered by the employee to the company. This payment also acts as an incentive for motivating the employee.
Eligibility for receiving Gratuity
An employee is eligible for receiving gratuity payment only after he has completed 5 years of continuous service.
What is Continuous Service?
An employee is said to be in continuous service for a period when he has provided uninterrupted service during that period. However, interruption on account of:
- Sickness
- Accident
- Leave
- Lay-off
- Strike, lock-out, cessation of work not due to any fault of the employee
- In case of a female, maternity leave not exceeding 12 weeks will not be considered as a break in service.
How is Gratuity Calculated?
If years of service are:
- Over 5 years and less than 10 years, Gratuity = Last Salary Drawn x 15 x No. of Years of service / 26
- Over 10 years and less than 20 years, Gratuity = Last Salary Drawn x 22 x No. of years of service / 26
- Over 20 years, Gratuity = Last Salary Drawn x No. of years of service
Where,
Salary = Basic + Dearness Allowance
How to determine years of service?
While calculating completed years of service, any fraction of the year will be ignored. For instance, if the service of the retiring employee is 30 years 10 months and 26 days, 30 years will be taken for this purpose, ignoring the balance of 10 months and 26 days.
Maximum amount of gratuity payable
As per the Gratuity Act, the employer has to pay 15 days' salary for each year of service subject to a maximum of Rs.3.5 Lakhs.
Tax treatment of Gratuity
The gratuity received by an employee, covered by the Payment of Gratuity Act 1972, is exempt from tax to the extent of the least of the following:
- 15 days salary, based on salary last drawn for every completed year of service or part thereof in excess of 6 months
- Rs.3,50,000
- Gratuity actually received
Gratuity in excess of the above limits is taxable in the hands of the assessee. Any gratuity paid to an employee while in service is not exempt from tax.
Regards,
Roopa
From India, Bangalore
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19Payment of Gratuity Act 1972
What is Gratuity?
Gratuity is a payment received by the employee from the employer on retirement, or on death, or on resignation, after completion of 5 years of service.
Why is Gratuity paid?
Gratuity payment is made by the employer as a mark of recognition of the service rendered by the employee to the company. This payment also acts as an incentive for motivating the employee.
Eligibility for receiving Gratuity
An employee is eligible for receiving gratuity payment only after he has completed 5 years of continuous service.
What is Continuous Service?
An employee is said to be in continuous service for a period when he has provided uninterrupted service during that period. However, interruption on account of:
- Sickness
- Accident
- Leave
- Lay-off
- Strike, lock-out, cessation of work not due to any fault of the employee
- In case of a female, maternity leave not exceeding 12 weeks will not be considered as a break in service.
How is Gratuity Calculated?
If years of service are:
- Over 5 years and less than 10 years, Gratuity = Last Salary Drawn x 15 x No. of Years of service / 26
- Over 10 years and less than 20 years, Gratuity = Last Salary Drawn x 22 x No. of years of service / 26
- Over 20 years, Gratuity = Last Salary Drawn x No. of years of service
Where,
Salary = Basic + Dearness Allowance
How to determine years of service?
While calculating completed years of service, any fraction of the year will be ignored. For instance, if the service of the retiring employee is 30 years 10 months and 26 days, 30 years will be taken for this purpose, ignoring the balance of 10 months and 26 days.
Maximum amount of gratuity payable
As per the Gratuity Act, the employer has to pay 15 days' salary for each year of service subject to a maximum of Rs.3.5 Lakhs.
Tax treatment of Gratuity
The gratuity received by an employee, covered by the Payment of Gratuity Act 1972, is exempt from tax to the extent of the least of the following:
- 15 days salary, based on salary last drawn for every completed year of service or part thereof in excess of 6 months
- Rs.3,50,000
- Gratuity actually received
Gratuity in excess of the above limits is taxable in the hands of the assessee. Any gratuity paid to an employee while in service is not exempt from tax.
Regards,
Roopa
From India, Bangalore
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Gratuity calculation.doc
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