Things you should know about gratuity benefits


24 December 2013  
Job-hopping can increase your income, but good old loyalty even offers its perks. Continue to with your boss for five years and up, and you have entitlement to gratuity when you resign, retire or are retrenched. This monetary reward to be paid by your current employer in recognition of the years of assistance is mandated by the Payment of Gratuity Behave. Most establishments employing 10 and up workers fall beneath the Act.
The amount you will get as gratuity depends on the quantity of years you have served as well as the last drawn monthly salary. Roughly, you will get half a month’s Basic and DA for each and every completed year regarding service. Here’s your formula to determine gratuity: (Number regarding years of service) * (Last driven monthly Basic in addition to DA) *15/26. Therefore, if you have served 30 several years and draw monthly Basic and DA regarding Rs 20, 000 when you leave the employment, you get gratuity regarding Rs 3, 46, 154 calculated while (30 * 20, 000 *15/26). Your employer can tend to pay you more but what of gratuity using the Act cannot surpass Rs 10 lakh. Amount paid above this will be in the character of ex-gratia — something voluntary but not mandated according to be able to law.
If you serve more than six months within the last year of employment, it is regarded as a full yr of service. For instance, if your payoff time is 30 several years and 7 a few months, the years regarding service for gratuity calculation are going to be rounded off to be able to 31. But when you serve 30 several years and 5 or six months, then the period of time of service are going to be considered as thirty.
Waiving the tip
Going by your book, gratuity is payable only in case you have been with your employer for five years and up. But this tip is waived if a workforce dies or is disabled. In like cases, gratuity is paid towards nominees or towards employee, even in the event the tenure is lower than 5 years.
Even employees not covered beneath the Payment of Gratuity Act have entitlement to gratuity. But in these instances, the formula regarding gratuity calculation varies. It is computed because (number of several years of service) * (average monthly salary within the last 10 months regarding employment) * (15/30). This computation tends to make the gratuity total lesser than that beneath the Act. For illustration, in the preceding example, an employee not included in the Act will be entitled to Rs 3, 00, 000 while gratuity, calculated while (30 * 20, 000 * 15/30). This can be Rs 46, 154 lower than employees covered beneath the Act have entitlement to. Another difference is that only totally completed years of service are thought in the information, and partial service within the last year, even if it more than six months, is ignored. For illustration, service of thirty years and 7 a few months, will be regarded as 30 years but not 31 years.
Another positive could be the favourable tax treatment method that gratuity delivery enjoys. Tax treatment method
If you are a government employee, then a entire amount you will get is exempt by tax. If you are not a government personnel but are covered beneath the Act, you get tax deduction for an amount which could be the lower of this:
a) Actual gratuity obtained
b) 15 nights Basic and DA for every single completed year regarding service (according to calculations within the example above)
c) Rs 10 lakh
Say, in the illustration above, your boss paid you gratuity regarding Rs 5, 00, 000, which is more than your Rs 3, 46, 154 actually payable beneath the law. You will relish tax deduction in Rs 3, 46, 154 and your surplus Rs 1, 53, 846 are going to be subject to tax. Note that the complete tax deduction in gratuity amounts obtained, including those by previous employers within earlier years, cannot exceed Rs 10 lakh.
Employees not covered beneath the Payment of Gratuity Act are also entitled to tax deduction on the amount they obtain. The deduction rules resemble those applicable for employees included in the Act.