Gratuity formula = Number of Service years in a company *Last Drawn Basic Salary + Dearness Allowance* 15/26. To check out how to calculate gratuity, read more.
Introduction – How to Calculate Gratuity Amount ?
A gratuity is an amount of money that an employer (organization) gives to an employee for working for them for a long time, like for 4 or 5 years at a time. People can get their gratuity money in cash, check or demand draught. In this blog we’ll know about calculate gratuity amount.
For Gratuity, there are two things you must do before you can get it. These two conditions have been talked about below.
- At least 10 people must work for your company or organisation. This means that at least 10 people must be paid by your company. Remember that people who work on a contract are not entitled to gratuity benefits
- You must have worked for at least five years for your company. However, there is an exception to this 5-year rule. If an employee dies or is unable to do his job even in the first year of his service, he can get this gratuity benefit, as long as the first condition is met.
Important Points about Gratuity
When an employer gives gratuity to employees, let’s look at a few of the most important things to keep in mind about this.
- It is possible for an employee to get more than ₹ 10,000,000. It will be based on the points under taxation to figure out how much of a tax exemption this person will get
- In the interim budget for 2019, the current Finance Minister of India, Mr Piyush Goyal, said that the tax-exempt gratuity limit has been raised to ₹ 30 Lakhs
- This means that if an employee is asked to leave their job for any reason, the employer can refuse to pay them their gratuity money
- In the event that an employee dies, the beneficiary or family member of the employee will get the gratuity money that the employee earned over time. People who get money from other sources pay income tax on this.
Payment of Gratuity Act
This law was passed in 1972. There are a lot of people who work in factories and other places that have a lot of people. They can get a bonus from their employers if they have a lot of people working for them. In contrast to a pension fund, gratuity is paid entirely by the employer without the employee having to contribute any money to it.
Gratuity Rules
In this section, we will walk through the basic rules behind gratuity.
Gratuity Forfeiture
Employers can withhold part or all of an employee’s gratuity payment even if they have worked for the company for more than five years. This is because of the Payment of Gratuity Act 1972. Gratuity forfeiture can happen if the employee is fired for any reason, such as being rude or being late to work.
Timeline
The payment of gratuity can be done in three easy steps. This also has:
- The person who is authorized to do so needs to send an application to the company about the gratuity he or she has earned from the company
- An application for gratuity must be submitted to your employer. The organization that owns the gratuity will then figure out how much it is and send an acknowledgment of that to the employee and his or her supervisor, as well as a specific amount. Use a gratuity calculator to figure out how much gratuity you should pay
- After the employer sends the acknowledgment, they have 30 days to pay the gratuity to the person.
Eligibility
Following are the rules for getting gratuity:
- The employee should be able to get superannuation
- When the worker retires
- In the event that an employee leaves a company after working there for more than five years
- In the event that the employee dies from an illness or an accident, or if he or she is unable to work.
Gratuity Formula to Calculate Gratuity Amount
A gratuity amount is made up of a lot of different things. Let’s look at them one by one. The gratuity amount also depends on how many years you worked for the same company and how much money you made last time.
Gratuity = Number of Service years in a company *Last Drawn Basic Salary + Dearness Allowance* 15/26
How to Calculate Gratuity Amount?
Let’s look at a case to calculate gratuity amount.
He worked for an IT company for 20 years. Rajesh’s last salary was ₹ 25,000 basic and DA, which is what he will get from the company.
This is how much Rajesh will get in gratuity: 20 * 25,000 * 15/26 = ₹ 2, 88,416.54.
A tip could be a way for an employer to pay more gratuity to an employee. The Gratuity Act says the amount of gratuity payments can’t be more than ₹10 Lakh, though.
Computation of Gratuity in Different Cases
In this section, we will walk through the different cases involved in the computation of gratuity.
An Employee Who Does Not Come Under the Act
There is no law that says employers can’t give a gratuity to their employees even if their company isn’t part of a law that says gratuity should be given to employees. The amount of gratuity the employee gets is based on how much they make in a half month for each full year of service. Salary in this case is made up of commission on sales, basic pay, and a “dearness allowance.”
Let’s look at the formula to calculate gratuity amount that is used to figure out how much gratuity an employee who isn’t covered by the gratuity act: should get when they leave their job.
Gratuity Amount= (15*Last Drawn Salary Amount* Period of Service)/30
The Demise of an Employee
If an employee dies, the gratuity amount is calculated based on how long the employee worked for the company, so it is based on how long the employee worked. There is, however, a cap on how much you can spend. Below is a table that lists the rates at which the gratuity will be paid to the employee’s beneficiary or family member in the event of his or her death.
| Term of Service | Amount Payable Towards Gratuity |
| Less Than Year | 2* Basic Salary |
| 1 year or more but less than 5 years | 6* Basic Salary |
| 5 years or more but less than 11 years | 12* Basic Salary |
| 11 years or more but less than 20 years | 20* Basic Salary |
| 20 years or more | One-half of the BS for each completed six-month time frame However, it can’t be more than 33 times the basic salary at all. |
Conclusion:
To summarise, you receive a gratuity when you leave a company as an employee, whether it’s due to retirement or another factor. The Payment of Gratuity Act of 1972 provides some instructions for paying the gratuity amount. You are only eligible for gratuities if you have been employed by the company for five years or longer. Vakilsearch can guide you with the details and provide you with an online Gratuity calculator to calculate gratuity amount.
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