You will be eligible for Gratuity, only if you have worked in a particular organization for a seamless stretch of 5 years or more. After the said period of service, you become eligible for Gratuity but do not receive it until you resign or retire from the company.
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 -

  1. 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.

  2. 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.
Hence firstly, find out what kind of company you work in; if there is at all a provision for Gratuity.
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
Note:
  • 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 Implications

Gratuity 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.

In Conclusion

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.

DISCLAIMER

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.



Trending Articles

Article Links

Financial Advisor

Recurring Deposit vs Fixed Deposit

What is Fixed Deposit

What is a Credit Score

What is a Savings Account

Latest Articles

abc-of-personal-money
abc-of-personal-money

Is Any Dream Too Big If It Is Born Out of Passion and Ambition?

Read More
Posted on 30 March 2020
abc-of-personal-money
abc-of-personal-money

Free Access to some Amazing Content Online

Read More
Posted on 30 March 2020
abc-of-personal-money
abc-of-personal-money

Free Access to Online Music

Read More
Posted on 30 March 2020

Featured Articles

image abc-of-personal-money
abc-of-personal-money

Are Millennials Any Different When It Comes To Planning Financials?

Read More
Posted on 05 February 2020

Relevant Articles

image abc-of-personal-money
abc-of-personal-money

Is Any Dream Too Big If It Is Born Out of Passion and Ambition?

Read More
Posted on 30 March 2020
image abc-of-personal-money
abc-of-personal-money

Free Access to some Amazing Content Online

Read More
Posted on 30 March 2020
image abc-of-personal-money
abc-of-personal-money

Free Access to Online Music

Read More
Posted on 30 March 2020