How To Calculate Gratuity
Todays (11th Jan 2010) Times Of India carry's a good article on gratuity. I always thought that gratuity was useless. In times such as todays when people change jobs frequently, Gratuity is one way to earn money for employees who stick around for more than five years.
What is gratuity?
Gratuity is governed by the Gratuity Act, 1972. It is a defined benefit plan. It is a lumpsum that is paid to the employee when he/she exits the company. It is mandatory for companies with more than 10 employees on their payrolls to give gratuity to an employee on resignation, retirement and termination of service. But this applies only to those employees who have completed five years continously in the same company. Which means if you leave after working for two years and rejoin after sometime and work for another three years, you will not get this benefit.
Gratuity is non taxable for government employees but has a cap of Rs.10 lakhs for it to be non taxable for privately employed persons.
The calculation
Gratuity = (Last salary drawn x 15 x Number of years served)/26
Salary = Basic + DA
What is gratuity?
Gratuity is governed by the Gratuity Act, 1972. It is a defined benefit plan. It is a lumpsum that is paid to the employee when he/she exits the company. It is mandatory for companies with more than 10 employees on their payrolls to give gratuity to an employee on resignation, retirement and termination of service. But this applies only to those employees who have completed five years continously in the same company. Which means if you leave after working for two years and rejoin after sometime and work for another three years, you will not get this benefit.
Gratuity is non taxable for government employees but has a cap of Rs.10 lakhs for it to be non taxable for privately employed persons.
The calculation
Gratuity = (Last salary drawn x 15 x Number of years served)/26
Salary = Basic + DA
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