Finance

How To Calculate Gratuity? Explained!!

We all know the importance of savings. It is something that aids every working individual after his or her retirement. Now, it is always easy to think and make big commitments to oneself but not everyone ends up saving wisely.

Fortunately, today we have a number of employee benefits to rely on. One of which is gratuity! Despite being one of the well-known benefits in India, most employers and employees have zero inklings about it. Taking this into account, we have included some common questions/queries related to gratuity to help you acquire a clear picture of it.

Take a look!

Gratuity

First thing first, one should know the exact meaning of gratuity. So, it is an amount of money that every business rewards its employees for the valuable efforts they have given to the success/growth of the company. In simpler words, it is a type of tip an employee receives. Now, there are also certain conditions to be eligible for this tip that are clearly discussed in the undermentioned point.  

Eligibility For Gratuity Payment

So here is the list of eligibility requirements to receive gratuity payment:

  • Employees who have worked in a firm for a time period of 5 years or more can avail this benefit plan
  • Employees ought to be qualified for superannuation or resigned from their employment to avail their gratuity payment
  • Employees terminated following any illegal or immoral act will be ineligible for the gratuity payment.

Gratuity Calculation

One of the common searches regarding gratuity if “gratuity calculator”. Most people find it really complicated; however, it is not if done in the right way.

In India, the Payment of Gratuity Act 1972 governs the gratuity. Needless to say, the whole gratuity calculation is completely different from every other employee benefit plan. According to the Payment of Gratuity Act 1972, an employee receives his or her gratuity amount of one year for every 6 months in a specific monitory year. That implies, if you have worked in a company for 4.6 years, i.e. 4 years and 6 months, then you will receive your gratuity payment for a total of 5 years.

Principle Rules Of Gratuity

Every employer and HR professional should be well-versed with the following rules of gratuity:

  • After the death of an employee, a firm is yet liable to pay his or her gratuity fund for the total period service he or she has worked.
  • If an employee resigns due to being physically handicapped or any serious illness, a company should pay his or her gratuity amount.
  • No employee can request/claim gratuity if he/she is terminated following any kind of illegal or immoral activity.

Important Points To Remember

Gratuity is indeed a big concept. It is not just limited to rules, eligibility, and calculation; there is more to it! With that being said, here is some vital information about gratuity that every employer, employee, and HR manager must know about:

  • Gratuity Tax

The tax for gratuity depends on the type of firm an employee is working in. It differs for private, government, and non-government workers. For instance, the gratuity payment made to government workers is tax-free.

The Income Tax Division has even included a Tax Calculator option on their website to aid people who find it difficult to calculate the taxable portion of their gratuity payment.

Also Read: Importance of Gratuity in Our Life

Undoubtedly, this is an exceptional feature to assist employees, particularly those who work in non-governmental and private companies.

  • Forfeiture

Every business has the privilege to relinquish gratuity payment. Also, an employer can forfeit a gratuity amount completely or partially. Again this happens under some particular conditions such as if an employee is fired due to a strong reason.

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Amit Kumar

Amit Kumar is an experienced tech enthusiast, digital marketer and blogger who is well known for his ability to predict market trends. Check out his blog at Digital Drona (http://www.digitaldrona.com)

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