Gratuity Calculation: The Central Government has increased the tax exemption limit on gratuity from Rs 20 lakh to Rs 25 lakh. Gratuity amount is usually given after retirement. But even if you leave the job after five years of service, you will still get the gratuity amount. Let us know what gratuity is and how it is calculated.
Gratuity Calculation: Recently, the Center gave a big gift to government employees and pensioners by increasing Dearness Allowance (DA) and Dearness Relief (DR) by four percent. The government has also increased the tax exemption limit on gratuity, which is considered a big relief.
Let us know what gratuity is, how it is calculated and how much amount is received under it.
What is Gratuity?
In simple words, gratuity means reward for loyalty. It is given to those employees who work in the same organization continuously for a long time. If a person is in government service, or works in a company with 10 or more employees, then after a fixed period he becomes entitled to gratuity under the Payment of Gratuity Act, 1972.
Currently, the condition for gratuity is to serve in the same institution for at least five years. However, there is talk of reducing it to one year. This has been discussed in the New Wage Code of the Centre. If this happens, crores of employees working in government or private institutions will benefit greatly.
When is gratuity received?
Generally gratuity is paid after retirement. But, if you leave or change jobs after completing five years of continuous service, you will still get the gratuity amount. This condition does not apply if the employee dies or becomes disabled during service.
If an employee causes damage to the organization’s property through negligence or mistake and is fired, the organization can compensate for his loss from his gratuity.
How is gratuity calculated?
The formula to calculate gratuity is,
Total gratuity = (last basic monthly salary) x (15/26) x (years of service).
For example, you started your job in 2019 and resigned in 2024. At the time of resignation, your basic monthly salary was Rs 50 thousand. So your gratuity amount will be known like this.
50,000 x (15/26) x 5 = Rs 1,44,230
The thing to note here is that except February, all the other months of the year have 30 or 31 days. But, under the Payment of Gratuity Act, 1972, working days including four weekly holidays have been fixed at 26 days.
What if the company refuses to pay gratuity?
If you have worked for five years and have not done any unethical or illegal work, then the company will have to pay your gratuity amount in any case. If the company refuses, a legal notice can be sent against it.
If the company still doesn’t agree, you can go to the District Labor Commissioner and complain. If the decision comes in your favor, the company will have to pay fine and interest along with gratuity.
How much tax exemption is available in gratuity?
Earlier the limit of tax free gratuity was Rs 20 lakh. But, in its recent gift, the government has increased it to Rs 25 lakh. Even before the 2019 Lok Sabha elections, the government had increased this limit to Rs 10 to 20 lakh.
This limit applies to gratuity throughout the working life of the employee. No matter how many times you receive gratuity, the limit of gratuity exemption will remain at Rs 25 lakh.
