In case of sudden demise, Gratuity is paid to your spouse. The decision regarding the amount to be given in such cases rests in the hands of the employer.
How Much Gratuity Will I Get?To understand the calculation of Gratuity and to find out how much you will receive when you resign or retire, we have first to understand a couple of things.
The Payment of Gratuity Act, 1972 separated employees into two categories -
- Employees Covered Under The Act - If the company where you work has employed at least 10 people on a single day within the last financial year, then the employees are considered to be ‘covered under the Act’. Even if the company doesn’t employ 10 people at once later on, it won’t make any difference. The employees of this company will always be ‘Covered Under The Act’ once they have held that status.
- Employees Not Covered Under The Act - Employees of any such company which doesn’t meet the above criterion, then the Employees of such an organization shall be considered ‘Not Covered Under The Act’. These employees may or may not receive Gratuity depending on the policies set by this company.
If you are an ‘Employee Covered Under the Act’ then the following Gratuity calculation is for you:
How To Calculate Gratuity?The Gratuity calculation takes:
15 days of each year you have worked
Your last drawn basic salary
The tenure of your employment with that particular company
Let’s consider the following scenario for smoother understanding. Suppose:
- Your last drawn basic salary = Rs.20,000
- Tenure of work in that particular company = 30 years
- Number of working days in a month is considered =
26 days for employees covered under the Act
30 days for employees not covered under the Act.
The Formula(No. of Days of each year x last drawn basic salary x tenure) divided by no. of working days in a month = Gratuity Amount
Hence, for an ‘Employee Covered Under The Act’ -
(15 x 20000 x 30)/ 26 = Rs. 3.46 lakh
And, for an ‘Employee Not Covered Under The Act’ -
(15 x 20000 x 30)/ 30 = Rs. 3 lakh
Tax ImplicationsGratuity can be earned up to a maximum of Rs.20 lakhs depending on your last drawn basic salary. Any amount of Gratuity you receive up to Rs.20 lakhs is considered completely tax free income.
Gratuity is always given as a lump sum amount, which is why it helps immensely in boosting your financial health. You receive Gratuity when you resign or retire from an organization in which you have worked continuously for at least 5 whole years.
The amount of Gratuity depends on government regulations and some simple mathematics using your tenure of work in the company and your last drawn basic salary.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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