New Delhi: Gratuity refers to the amount that an organisation pays to its employees after 5 years of continued service or more. An employee becomes eligible for gratuity either on resignation from that organisation or after retirement. According to gratuity rules, all organisations covered under the Payment of Gratuity Act, 1972, are liable to pay this sum to their eligible employees.
Gratuity calculator
Gratuity is calculated on the basis of following factors:
Last drawn salary
Total Number of years of service
Gratuity Formula in India
Gratuity formula in India requires the employee to first multiply his last-drawn salary by the total number of years of service. Then, they need to again multiply the product of these two by 15 and divide the whole figure by 26.
Gratuity = (15 * last drawn salary * years of service) / 26
Gratuity Formula Example
If you have worked in an organisation for a period of 5 years and if your last drawn basic salary along with dearness allowance was Rs 50,000. Then, the gratuity amount will be:
15 * 50,000 * 5 / 26 = Rs 1,44,230
You are entitled to gratuity even if you have worked for 6 months or more in the last year of your total employment tenure with a particular organisation, but didn’t work for all the 12 months of that last year.
Suppose your tenure of service is 15 years 7 months, then, your total number of services rendered to the organisation will be 16 years for gratuity calculation.
How is gratuity taxed in India
Gratuity in India is not taxable up to a certain limit.
An employee does not have to pay tax on gratuity up to the limit of Rs 20 lakh.
It is to be noted that this exemption is applicable on aggregate gratuity received by the staffers throughout their lifetime.
Any amount received as gratuity over this limit will be taxable in the hands of the taxpayer.
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How to calculate gratuity: Gratuity is a part of the service rules in India subject to organisations covered by the Payment of Gratuity Act, 1972. Know how it is taxed in India. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
