Compare the calculation processes of gratuity and GST, leveraging the convenience of online calculators for accurate results. Explore the distinctions between gratuity and GST calculations and enhance your understanding.
Gratuity Vs GST
Gratuity is the sum provided by an employer to a worker in exchange for performing work to the firm. However, the gratuity is only paid who have worked with the company for more than 5 years. The Payment of Gratuity Act of 1972 regulates it.
If the employee is handicapped in an incident or owing to an ailment, he or she can get the gratuity sooner than five years. Gratuity is determined mostly by your most recent income and years of contribution to the company. Let us find out Is Gratuity Calculation is as Simple as GST Calculation in this article.
What is Simple to Calculate: Gratuity or GST?
Gratuity and Goods and Services Tax (GST) are two distinct financial elements with different calculation methods and implications. While gratuity is a retirement benefit provided to employees, GST is an indirect tax levied on the supply of goods and services.
The calculation of gratuity involves considering the employee’s service tenure and the last drawn salary, while GST calculation is based on the taxable value of goods or services and the applicable GST rates. Both gratuity and GST have their unique complexities and considerations, making it challenging to determine which is simpler to calculate.
What is Taxability of Gratuity?
The taxability of gratuity varies based on the type of employee and the sector they work in. In the government sector, gratuity received by employees is fully exempt from tax. However, in the private sector, gratuity is taxable if it exceeds a certain threshold. The taxability of gratuity is influenced by the provisions of the Payment of Gratuity Act and the Income Tax Act, making it essential for employees to understand the tax implications of gratuity based on their employment sector.
To find out whether or not the gratuity payable to you is subject to income tax, reach out to the experts at Vakilsearch and request a callback right away!
What is Taxability on GST?
GST is levied at different rates, including 0%, 5%, 12%, 18%, and 28%, based on the nature of the goods or services. Certain goods and services are exempt from GST, while others are taxed at specific rates. The taxability of GST is determined by the GST rates applicable to different categories of goods and services, including electricity, petroleum products, and various consumer goods. Understanding the taxability of GST is crucial for businesses and consumers to ensure compliance with the GST regime.
Before registering for GST, calculate the GST amount to be paid using our GST calculator.
How to Do Gratuity Calculation?
The Gratuity calculation involves considering the number of years of service and the last drawn salary of the employee. The formula for calculating gratuity is Gratuity = Number of years at work × (Last month’s salary + D.A.) × 15/26.
Several online gratuity calculators are available to simplify the calculation process. Use Vakilsearch’s free gratuity calculator for accurate gratuity amounts based on your service tenure and salary details.
What Are the Basic Requirements for Gratuity Pay-out?
Gratuity is payable to the employees of a company. However, if you wish to receive gratuity from your employer, there are certain specifications that you need to know. It will help you decide whether or not you are eligible to receive gratuities. You must meet the following qualifying requirements in order to receive the gratuity: –
- You should be entitled to retirement benefits.
- After 5 years of continuous employment with the organisation, you should have left.
- The gratuity is paid to your nominee in the event of your death, or to you if you become disabled due to medical reasons or an incident.
What is the purpose of a Gratuity Calculator?
Now, what exactly is the purpose of a gratuity calculator? A gratuity calculation is made that predicts the amount you would earn if you left your job after 5 years of continuous service. It’s a useful method for calculating the gratuity when you leave the company.
The last withdrawn salary and the length of constant service with the company must be entered. Your basic wage, dearness, is included in your most current drawn salary.
The Gratuity Calculation is Done Using the Formula
- If the firm is under Gratuity Act –
15* (your current salary drawn * length of service period) / 26
15 x (40,000 x 5) / 26 = 1,15,384.6/- approximately.
For Example, if my current salary drawn is 30,000 p.m. and my minimum service period is 5 years, so above will be my Gratuity claim after 5 years.
- If the Firm is not under Gratuity Act –
15* (your current salary drawn * length of service period) / 30
15 x (40,000 x 5) / 30 = 1,00,000/- approximately
There are two things to keep in mind:
- The gratuity sum cannot exceed ₹ twenty lakhs, according to the Gratuity Act.
- If the number of years you worked in the previous year of employment is exceeding 6 months, it will be rounded up to the nearest whole number.
example – If your service period is 20 years and 7 months, you will receive a gratuity for 21 years. If it is 17 years and 4 months, it is received for 17 years only.
Gratuity Using the Gratuity Calculator by Following These Steps
Here are the steps that you need to follow if you wish to do gratuity calculation on your own online –
- Input the basic pay and, if appropriate, the dearness allowance.
- After that, you enter the number of years you’ve worked for the company.
- In seconds, the gratuity calculator would determine the whole gratuity amount due to you.
The Gratuity Calculator’s Advantages
The Gratuity Calculator is a simple technique that provides only the basic pay and years of service. It gives you an approximation of how much gratuity you’ll get after 5 years of constant service.
In seconds, the gratuity converter will display the gratuity figures. It assists you in budgeting by allowing you to deposit the gratuity wisely for the best possible return.
For Gratuity Calculation you can utilise the gratuity calculator from comfort and privacy or basically anytime and anywhere. Isn’t this the easiest way to calculate the total gratuity amount payable by an employer to its employees?
What Are the Gratuity Tax Laws?
The tax rules of a gratuity are determined by the sort of employee who must receive it. Any gratuity received by a government employee (whether from the federal, state, or local government) is tax-free.
Any other qualifying commercial employee whose employer is protected by the Gratuity Payment Act. The following three amounts will be excluded from income tax in this case:
- Twenty lakhs.
- The amount of gratuity that was received.
- The amount of gratuity that is eligible.
Gratuity’s Most Recent Advancements
The fact that the tax-free gratuity maximum has been raised to ₹ Twenty lakh from ₹ Ten lakh for private-sector employees is one of the most significant developments. Ahead of the announcement and execution of the 7th Pay Commission, the same was done for government workers.
The Union Government has proposed numerous security measures for the workers in wake of the latest pandemic and viral outbreak across the country.
Finance Minister Nirmala Sitharaman said during one of her recent press briefings that the government intends to give gratuity after a year of service. This will apply to a company’s fixed-term workforce.
Conclusion on Gratuity Calculation
One thing that you really need to understand here is that during the entire working life, a person may only claim a maximum gratuity amount of twenty lakhs only. Basically, the amount that an employer can pay its employee cannot exceed twenty lakhs. And now that you are aware of the things related to gratuity, it will be easier on your part to seek gratuity from your employer. Also, you will be able to gauge whether or not you are eligible to opt for gratuities from your employer.
Is there a maximum limit on gratuity payment?
Yes, the maximum limit on gratuity payment is ₹20 lakhs in India, as per the Payment of Gratuity Act, 1972. Any amount above this limit is considered an ex-gratia payment.
Can gratuity be claimed by all employees?
Gratuity can be claimed by all employees who have completed at least five years of continuous service with an employer, as per the Payment of Gratuity Act, 1972.
Is GST the same across all products and services?
No, GST rates vary across different products and services in India. They are categorised into different tax slabs such as 5%, 12%, 18%, and 28%, with some items being exempted or taxed at 0%.
Are there exemptions or thresholds for GST payments?
Yes, there are exemptions and thresholds for GST payments. Certain goods and services are exempt from GST, and there are threshold limits for GST registration based on turnover.
Is GST applicable on inter-state transactions?
Yes, GST is applicable to inter-state transactions in India. Integrated Goods and Services Tax (IGST) is levied on the supply of goods and services between different states or union territories.
