How to Calculate Gratuity After Resignation or Retirement

-

 

Gratuity is a lump sum amount an employee receives from their employer as a token of appreciation for their service. In India, the Payment of Gratuity Act, 1972 governs gratuity payments. Understanding how to calculate gratuity is essential for employees approaching resignation or retirement.

To calculate gratuity, it is crucial to note whether the organization is covered under the Gratuity Act. For organizations under the act, the formula is:

Gratuity = (15 / 26) * Last Drawn Salary * Years of Service

Here, the Last Drawn Salary comprises basic pay plus dearness allowance. Assume an employee with a Last Drawn Salary of Rs. 50,000 and has completed 20 years of service. The gratuity would be:

 Gratuity = (15 / 26) * 50,000 * 20 = ₹5,76,923

For organizations not under the Gratuity Act, the method differs slightly:

Gratuity = (15 / 30) * Last Drawn Salary * Years of Service

Applying the same salary and tenure as above, the gratuity will be:

Gratuity = (15 / 30) * 50,000 * 20 = ₹5,00,000

It's important to understand that gratuity is applicable only after 5 years of continuous service, although exemptions exist for cases including death and disablement.

Summary

Calculating gratuity is essential for employees retiring or resigning, especially for those who have completed continuous service of five years. For organizations governed by the Payment of Gratuity Act, 1972, the calculation centers on multiplying 15/26 of the last drawn salary by the years of completed service. For others, a ratio of 15/30 applies. With the current tax exemption limit set at Rs. 20 lakhs, understanding these formulas can help in financial planning. Nonetheless, it's essential to be aware of the firm's policies and eligibility requirements related to gratuity due to variables like tenure and salary.

Disclaimer: 

The aforementioned calculations are basic and might change with tax amendments or financial policies. Employees and investors are advised to comprehensively evaluate all conditions pertaining to the Indian financial market and consult financial advisors for updated guidance.


Comments

Post a Comment

Popular posts from this blog

How to Revise Form 10E for Tax Relief Under the Income Tax Act

-
Image
 When it comes to filing your income tax return, certain forms and details can sometimes be overwhelming. For taxpayers in India, Form 10E is crucial when claiming relief under Section 89(1) of the Income Tax Act. However, there may arise situations where you need to revise Form 10E post-submission. This article will elucidate the steps to revise Form 10E of the Income Tax Act, while also touching upon the secondary keywords such as "Form 31 in EPFO" to give you a more rounded understanding of related topics.  What is Form 10E? Form 10E income tax is required to be filed when you are claiming relief under Section 89(1), particularly if you receive salary in arrears or advance. This form helps in reducing the tax burden caused by income bunching in a particular year.  Why Revising Form 10E is Important While filing your income tax return, there might be errors or omissions in the initial Form 10E that you submitted. Such mistakes can affect your tax computation, leading t...
Read more

What is a Flexi FD? Understanding Flexible Fixed Deposits

-
Image
A Flexi FD, or flexible fixed deposit, is an innovative savings option combining the benefits of a fixed deposit with the liquidity of a savings account. This hybrid investment solution is ideal for those seeking stability with accessibility. Here's everything you need to know about Flexi FD: Seamless Liquidity: Unlike traditional FDs, a Flexi FD allows partial withdrawals without breaking the entire deposit. The remaining balance continues earning interest at the original rate, ensuring you maintain returns while accessing funds during emergencies. Linked Savings Account : A Flexi FD is typically linked to your savings or current account. This linkage enables automatic transfer of surplus funds from your account to the FD, maximizing returns without manual intervention. Attractive Interest Rates: While offering liquidity, Flexi FDs still provide competitive interest rates. They balance the benefits of higher returns associated with fixed deposits and the flexibility of a savings...
Read more

How to Resolve Errors in Your PF Passbook

-
Image
  The PF (Provident Fund) passbook is a crucial document for employees in India, showcasing the contributions made by both the employee and employer towards the employee's retirement savings. Ensuring that your PF passbook is accurate is essential for tracking your savings and understanding the funds available to you at retirement. Errors in your PF passbook can result in significant discrepancies in your retirement corpus. Here's a detailed guide on resolving these errors efficiently.  Understanding the PF Passbook Your PF passbook contains important information such as the employee's UAN (Universal Account Number), account details, monthly contributions, and interest accrued. Any discrepancies in this information could lead to inadequate savings for retirement, thus vigilance is necessary.  Identifying Common Errors in the PF Passbook Common errors in the PF passbook include: 1. Incorrect Personal Details: Errors in personal details like name, date of birth, or father...
Read more