While working for a company, a part of the employee’s Salary is deducted as Gratuity. In the initial stages, it is done voluntarily and completely depends on the employee.
The Gratuity Act, 1972, obliges every company with more than ten employees to pay gratuities to their employees. Employees in this act are those who are hired by the company.
Gratuity is given on the basis of the amount of the employee’s basic salary and dearness allowance.
Let us know about the eligibility, payment options, and Gratuity Act of Gratuity or Gratuity in India.
1) During the Job
When a person has spent 5 years in a company, he gets the benefit of a gratuity. However, this benefit is not available upon death or disability. In this case, the nominee or legal heir gets the amount of the gratuity.
2) Calculation
The calculation of gratuity for an employee is covered under the Gratuity Act, 1972. When an employee is covered under this law, his 15 days’ salary or wages are multiplied by the number of years he has worked.
Let’s say gratuity = last basic salary x 15/26 x years of service.
That is, if your basic salary is Rs 6000 and you leave the company after 8 years, then the gratuity you will get is equal to (6000 x 15/26) x 8 = Rs 27,693.
When gratuity is received by private employees while in service, their gratuity is taxable and is included in their salary. But government employees get gratuity in the form of their retirement, death, or pension, and it is not taxed.
4) Time for Payment of the Gratuity Amount
- On pension or retirement
- Upon resignation
- Upon expulsion
- Death or disablement due to accident or disease
- Upon layoff
- On voluntary retirement
5) Important Information
At the time of joining the company, a person can nominate any member of his household by filling up the “F” form. And even if the company is running at a loss, it has to pay the gratuity amount.
Gratuity is not completely exempt from tax unless your amount is more than Rs 10 lakh.
And if you are thinking of leaving a company before five years, then think again, because you may end up doing a big loss to yourself.
