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What Is Gratuity?
Gratuity is given to you by your employer for your services. It is paid by both public and private sector employers.
What is 4.81% in gratuity?
Gratuity is included in your salary as a Cost to the Company (CTC). It is 4.81% of the basic salary.
Why gratuity is 4.81%?
Gratuity is paid for being associated with the company for a long time. 4.81% is what mentioned in the Gratuity Act.
The logic behind 4.81% of Gratuity is
Let us assume an employee’s basic pay is Rs.100/-
Gratuity eligibility per annum is the recent basic pay / 26 * 15
So the gratuity calculation for him is = 100 /26 * 15 = 57.69231
Therefore for one month = 57.69231 / 12 = 4.81 per month
Table Of Contents
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- Are you eligible for a Gratuity?
- How is the five years service calculated?
- What is continuous service?
- To whom gratuity is payable?
- When is the Gratuity payable?
- Calculation of Gratuity
- Gratuity Act 1972
- Tax exemptions on Gratuity
- What if you are unable to complete five years of service due to death or disablement?
- How gratuity is calculated in case of death?
- When is gratuity not paid?
- What are the gratuity payment rules?
- What forms are to be used in gratuity?
- Employers have a right to forfeit gratuity
- Conclusion
What is the gratuity eligibility?
Discover if you are eligible for 4.81% gratuity.
If your company’s employees are more than 10 and if you complete a minimum of 5 years of continuous service, then you are eligible to receive gratuity as 4.81% of the basic salary
Once employee strength reaches 10, then even if it reduces later, you will be eligible.
Temporary staff, contract workers, etc, are also eligible as long as they are considered employees. However, apprentices will not be eligible.
If you are transferred overseas on an assignment, you will still be eligible for 4.81% Gratuity.
How is the five years’ service calculated for Gratuity in 2024?
Find out what these 5 years mean.
You should have worked for 190 days out of 365 days in case you work below the ground. All mining activities fall under this. In case you work above the ground, you should have worked for 240 days out of 365 days.
What is continuous service?
Any disturbance in employment due to the following reasons will not affect you and you will be deemed to be in continuous service. They include:
- Sickness
- Accident
- Leave
- Layoff
- Strike
- Lockout
- Termination of work not due to your fault
To whom gratuity rate of 4.81% is payable?
Do you think only employees are paid gratuity? See who is in this list
1) Employee
2) Nominee or heir: In case of death, it is paid to the nominee and if no nomination is made it is paid to the heir.
3) Controlling authority: If the nominee or heir is minor then it is deposited with controlling authority who will invest in the bank or other financial institution, as may be prescribed until the such minor becomes major.
When is the Gratuity payable?
When do you think gratuity is paid? It can be paid during any of the following:
- ✔ Resignation
✔ Retirement
✔ Voluntary Retirement Scheme (VRS)
✔ Retrenchment lay off
✔ Disability or death due to disease or accident
How gratuity of 4.81% calculated in 2024?
How to calculate retirement gratuity?
You can calculate the gratuity of 4.81% payable in 2024 using the below steps.
What are the factors that gratuity depends on? Gratuity of 4.81% calculation is based on two factors.
Gratuity depends on:
👉 Last drawn salary
👉 Years of service
If you want to know, what is the gratuity calculation 2024? 0r
How to calculate gratuity in 2024?, then
you can use our Gratuity Calculator for the gratuity of 4.81%.
Click here to download your Gratuity Calculator!
Gratuity Act 1972
Have you heard of the Payment of Gratuity Act 1972?
This Act was passed in the year 1972 and covers employees engaged in mines, factories, oil fields, plantations, companies, ports and such establishments that have more than 10 employees.
They have divided non-government employees into two:
- ⭐️ Employees covered under the Act
⭐️ Employees not covered under the Act
Are you covered under the Gratuity Act 1972? Check out if you are covered.
You will be covered under the Gratuity Act 1972, if the organization employs at least 10 people on a single day in the preceding 12 months. If an organization falls under this Act, then it will always remain covered even if the number of employees falls below 10.
Find how gratuity 4.81% is calculated for Employees covered under the Act.
⭐️ Employees covered under the Act
The Gratuity Formula for 2024 is as follows
Here are the frequently asked questions regarding the gratuity calculation.
How to calculate gratuity in salary?
How is gratuity calculated in CTC?
What is the gratuity calculator formula for 2024 for private employees?
What is the formula for gratuity in India?
What is the central government gratuity calculation formula?
The answer to all the above gratuiry related question is in the simple formula below.
Gratuity = (Last drawn salary X no.of completed years of service X 15) / 26
What is 15/26 in gratuity calculation?
(Last drawn salary X no.of completed years of service X 15) / 26
The last drawn salary includes basic salary, dearness allowance, and commission on sales.
26 is the number of your working days in a month.
Example: Mr. A’s last drawn salary is Rs.80,000 per month and he has worked with ABC Ltd for 20 years and 7 months.
(15 X 80,000 X 21)/26 = Rs. 9.69 lakh
Here we take 21 years as Mr. A has worked for more than 6 months in a year, i.e. 20 years and 7 months.
For the no. of months in the last year of employment, anything above 6 months is rounded off to the next number and anything below 6 months is rounded off to the actual no. of years not taking the months. So a job for 6 years and 7 months will fetch you 7 years gratuity, and a job for 6 years and 4 months will fetch you 6 years gratuity.
You can calculate the gratuity 4.81% by using our gratuity calculator.
Download the Gratuity Calculator Here!
Now find how gratuity is calculated for Employees not covered under the Act
⭐️ Employees not covered under the Act
The Gratuity Formula is as follows:
What is the formula for gratuity in India for the employees not covered under the Gratuity Act 1972?
Gratuity= (Last 10 months average salary X no.of completed years of service X 15)/30
Salary includes basic, dearness allowance and commission on sales.
In the above example, If Mr. A’s organization was not covered under the Act, then
(15 X 80,000 X 20)/30 = Rs.8,00,000
Here the no. of years is taken based on each completed year. A has worked with the company for 20 years and 7 months. Then A’s working period is 20, not 21.
Tax exemptions on 4.81% Gratuity in 2024
Do you know there are Tax Exemptions on Gratuity 4.81%? Yes, there are Exemptions. Calculate how much you are exempt from tax.
What is the gratuity formula for government employees?
Will the Government employees receive Gratuity of 4.81%?
Government employees receiving Gratuity
In case an employee under the state government, central government, local authority, or defence receives gratuity during death or retirement, it is fully exempt from tax.
A private employee receiving gratuity from an employer who is covered by the Payment of Gratuity Act 1972
The least of this is exempt from tax
- Rs.20,00,000
- Gratuity received
- Salary last drawn × Number of completed years of services × 15/26
A private employee receiving gratuity from an employer who is not covered by the Payment of Gratuity Act
The least of this is exempt from tax
- Rs.10,00,000
- Gratuity received
- Last 10 months average salary × Number of completed years of services × ½
Is gratuity calculated before or after tax?
The gratuity is calculated after tax.
What if you are unable to complete five years of service due to death or disablement?
You will be given a gratuity as if you have completed five years. You will be deemed to have completed five years but gratuity will be calculated on the number of years completed and not on five years. It is paid to you or your legal heir as the case may be, irrespective of the no. of years of continuous service. Gratuity received by the legal heir is exempt from tax.
How gratuity is calculated in case of death?
Do you know how is it calculated in case of death?
How is Gratuity calculated in case of death?
What is the death case gratuity calculation?
The calculation of gratuity in case of death in India is calculated based on the Gratuity amount based on the no. of years of service.
- Less than one year – 2 times the basic pay
- One year or more but less than 5 years – 6 times the basic pay
- 5 years or more but less than 11 years – 12 times the basic pay
- 11 years or more but less than 20 years – 20 times the basic pay
- 20 years or more – half the salary for every completed 6 monthly periods subject to a maximum of 33 times of salary.
When is gratuity not paid?
Are there cases in which gratuity will not be paid? Yes, see for what reasons.
- If you are fired for lawlessness or any other act of violence.
- If you include in an offense involving moral turpitude because of which you are fired.
What are the gratuity payment rules?
It can also be called the procedure for applying for gratuity:
-
- Once you become eligible to receive gratuity, you can apply within 30 days from the date it becomes payable. If the date of retirement is known, even then you can apply before 30 days.
- No claim can be invalid because you have not applied within the period.
- An employer has to specify the amount, with the date of payment, within 15 days of receipt of the application.
- The payment has to be made within 30 days from the date of receipt of the application.
- In case the employer rejects the application, he has to specify the reason.
- The payment can be made in cash, demand draft or cheque.
- If the claim is made to the legal heir or nominee, the employer may ask for a witness or evidence to ensure the genuineness of the claimant.
- You or the legal nominee can complain to the controlling authority (Assistant Labour Commissioner) in case of a dispute due to refusal of an application, underpayment or failure to make the payment within the period.
- The gratuity is still payable even if the employer goes bankrupt, and no court order can put a stay on it..
What forms are to be used in Gratuity?
This is the list of forms that are to be used in Gratuity:
1. Form I- Application for the payment of Gratuity
2. Form J- Application for the payment of Gratuity by Nominee
3. Form K- Application for the payment of Gratuity by Legal Heirs.
4. Form F- Nomination Form (To make a nomination)
5. Form G- To make a fresh nomination
6. Form H- Modification of the nominee
7. Form L- Issued by the employer to the employee stating the amount and date of payment.
8. Form M –Issued by the employer stating the reason for the rejection of gratuity
9. Form N- Application made to the labor commission by an employee
10. Form O- Issued by the authority to appear for case hearing
11. Form P- Summons issued by the authority to be present for the hearing
12. Form R- Issued by the authority directing to make gratuity payments
Employers have a right to forfeit gratuity
Did you know that your employer has a right to forfeit your gratuity?
There are two terms on which your employer can forfeit your gratuity. They are listed as follows:
If your services have been terminated for wilful omission or negligence causing loss or damage to or destruction of property of the employer, then your gratuity shall be forfeited to the extent of loss or damage.
The gratuity can be wholly or partially forfeited:
- If you are terminated for your disorderly conduct or violence or;
- If you are terminated for an offence involving moral turpitude, in case it is committed during employment.
Gratuity FAQ:
- What is the gratuity contribution by the employer?
An employee will get a gratuity from their employer as compensation for the services they have provided to the company. Under the payment of Gratuity Act, it s mentioned as 4.81% of the basic pay.
- What if I resign my job just before a few months before completing 5 years? Am I eligible for gratuity?
No. You need to complete 5 years of continuous service to be eligible for gratuity.
- What if I am contract employee?
If you are a contract employee and completed the 5 years of continuous service, then your contractor will pay you the gratuity.
- Are part-time employees eligible for gratuity in India?
No. Only fulltime employees are eligible for gratuity.
- How much time will it take to release the gratuity amount?
The employer must pay the gratuity payment within 30 days of the application being received.
Conclusion
I hope you got a thorough knowledge of gratuity calculation. and understood that gratuity in itself is a benefit. You would now be knowing the eligibility, calculations, exemptions, forms used and the conditions on which the employer forfeits gratuity. You can now apply these rules and find how much gratuity you are eligible for and also find what amount you are exempt from tax. It is in your hands to make a wise decision of investing this gratuity amount for your financial future.
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