In such a case the least of the following three amounts is exempt from tax. Any Other Salaried Individual Receiving Gratuity Amount from an Employer who is not Covered by Payment of Gratuity Act:.15 days salary as per the last drawn salary of the individual.In case of gratuity received by any employee whose employer is covered under the Gratuity Act, the following amount is exempt from tax. Any Other Salaried Individual Receiving Gratuity Amount from an Employer who is Covered by Payment of Gratuity Act:.In case any employee under the state government, central government or local authority receives gratuity amount than the amount is fully exempt from Income Tax. Government Employee Receiving Gratuity Amount:.Two standard cases arise for the calculation of tax on gratuity: The taxation process for gratuity depends upon the employee who is receiving the gratuity amount. The taxation for this is calculated for the receiver under the head – income from other sources. In case of death of the employee, the nominee or heir of the employee is paid the gratuity amount.The employer has the right to reject payment of gratuity to an employee if he/she has been asked to leave his/her job owing to any misconduct.Piyush Goyal announced that the existing tax-free gratuity limit will be increased to Rs.30 lakh. In the recent Interim Budget of 2019, interim finance minister, Mr.An employee can receive a gratuity amount higher than Rs.10,00,000 from his/her employer, the exemption for tax in this case will be calculated as per the points listed above under taxation.Few Significant Points about Gratuityįollowing are some of the most prominent points about payment of gratuity by an employer to an employee. This will apply to the fixed-term employees of a firm. In one of the recent press conferences held by the Finance Minister Nirmala Sitharaman has announced that the government plans to offer the payment of gratuity after the completion of one year of service.
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In light of the recent pandemic and virus outbreak across the nation, the Union Government has also proposed many security measures for the workforce. The same was done for central government employees right after the announcement and implementation of the 7th Central Pay Commission. One of the most important advancement in regard to gratuity for private sector employees is the fact that the ceiling has been raised to Rs.20 lakh from Rs.10 lakh for tax-free gratuity. Latest advancements in regard to Gratuity However, it is subject to a maximum of 33 times of the basic salary. Half of the basic salary for each completed six-monthly period. However, it is subject to a cap of Rs.20 lakh. The retirement gratuity amount which is payable is 16 times of the basic salary. Gratuity Amount is equal to one-fourth of the last-drawn basic salary of an employee for each completed six-month period. If the service period had been 10 years and 4 months (or anything less than 6 months), the number of years of service would have been considered as 10 years only.Īs per the rules recorded on the pensioner’s portal of the government, the amount of gratuity at the time of retirement is calculated as follows: Thus, the working tenure has been considered as 11 years.
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However, if the number of months completed in the last year of service is more than 6 months, the year is considered to be a full year for the purpose of calculation. In case the number of months worked in the last year is less than 6 months, the previous number of completed years is considered. The period of service of an employee is taken as a whole year for the calculation. Gratuity Amount = (15 * Last drawn salary amount * period of service) / 30įor example, if you have at a company for 10 years and 8 months and your salary is Rs.50,000, the calculation of the gratuity amount is done as follows: The following formula is considered for the calculation of gratuity amount for employees who are not covered under the Gratuity Act: The salary includes commission (sales based), dearness allowance, and basic salary. However, the calculation of gratuity is based on an individual’s half month’s salary for every year that has been completed. Calculation of gratuity for the employees who are not covered under the Gratuity ActĮven if the organisation is not part of the Act, they can pay gratuity.
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