Gratuity

What is gratuity?

Ans. Gratuity is a benefit under the Payment of Gratuity Act, 1972. It is a financial component given by the
employer to the employee.

Eligibility:

1. Completing 4 years 8 months or 5 years of service, according to the Payment of Gratuity Act, 1972.
2. On superannuation or retirement
3. When the employee retires
4. When the employee passes away due to a mishap, etc.

Calculation:

1. Basic (last drawn basic salary)/26*15*No. of years
2. Basic*4.81% (monthly)
3. In case of the employee's death:

Service tenure:

a. Less than 1 year: 2*Basic Salary
b. 1 year but below 5 years: 6*Basic Salary
c. 5 years but below 11 years: 12*Basic Salary
d. 11 years but below 20 years: 20*Basic Salary
e. 20 years or above: 33*Basic Salary

Income tax on gratuity:

A. Government Employees - Wholly Exempted

B. Statutory Corporate Employees - The following amounts are considered for exemption from income tax:

1. Eligible Gratuity
2. Actual amount of Gratuity received
3. 20 Lakhs

Of the above three amounts, the lowest is exempt.

How do you calculate gratuity when employees are not covered under gratuity?

Ans. Gratuity Amount= (15*Last drawn Basic Salary*no. of years of service)/30

Scope: Factories, mines, oilfields, plantations, railway companies, shops, etc.

How to add gratuity to the salary template:

Navigate to Control Panel → Payroll → Salary Template, and under "CTC Component", add "Gratuity" with Monthly frequency.

Form: Form "F" for gratuity. You need to fill in Form "F" when joining the company.