Gratuity is a lump sum amount paid to the employees by their employer if they have worked in a company for more than 5 years. The gratuity is defined as a benefit plan and is one of the major after-job perks received from an employer.
Features of Gratuity –
- A person is eligible to collect gratuity if he has completed a minimum of 5 years of service with a company or establishment. However, if an employee expires or is disabled due to accident or disease, he can receive gratuity before the completion of 5 years.
- A gratuity is receivable only after working continuously for 5 years. As per the recent update, gratuity received by a government employee is fully exempted from any tax. The maximum amount they can receive is Rs 30 lakh as per amendments made following the 7th Pay Commission recommendations and then the 2019 budget.
- All government and non-government working people are entitled to gratuity. Companies usually deduct 4.81% of your basic plus dearness allowance for your gratuity payment.
- Income tax exemption limit on gratuity increased to Rs. 30 lakh. The Budget of 2019 increased the gratuity from Rs. 20 lakhs to 30 lakhs with income tax exemption, a move that will benefit employees who are not covered by the Payment of Gratuity Act, 1972.
- If due to any reason, you are refused gratuity payment by your employer, a complaint under Section 8 of the act can be lodged, against the company.
- Under the Payment of Gratuity Act, 1972, an employee has the right to authorize a nominee who can legally recover the gratuity amount in the event of the death of an employee. If during the period of making a nomination the employee has no family, the nomination may be made in favor of any person he wishes to choose.
- Your service is calculated until the last working day that you are employed. It includes the notice period until you are relieved for which you get your salary. Hence, your gratuity will be calculated from the date you started working to your last working day including notice period.
According to Payment of Gratuity Act, 1972, all the employees who work in factories, mines, oilfields, plantations, ports, railway organizations, shops or other businesses, where 10 or more people are employed are required to the pay gratuity to their employees.
There is no predetermined set of percentage for the amount of gratuity that an employee is supposed to receive, an employer can use a formula based approach to calculate. The payable gratuity depends upon the last drawn salary and years of service of the employee.
Three ways to calculate gratuity balance-
- Income tax department website– You can go to www.incometaxindia.gov.in website. The given calculator will compute the amount of gratuity pay with respect to the input values such as assessment year, type of employer, gratuity received exempted gratuity and taxable gratuity.
- Check with your employer- Your employer or the HR of the organization keep the complete information of all the employees. One can approach their HR regarding the gratuity balance or amount.
- Formula to calculate gratuity yourself- Gratuity formula for calculation of gratuity depends on the period of employment, last drawn salary, and the number of completed years of service. The last salary withdrew (basic salary + DA) X years of service X 15/26.
Employees are entitled to full gratuity pay based on 30 days salary for every year of work by 21 or 30 (depending on the period of service in the company) = 333.30 x 21 = 6,999.30.