What Is Gratuity, How Is It Calculated, New Government Rule

Gratuity is an amount that is paid by the employer to the employee. An employee will be eligible to get the gratuity if he/she serves the company for 5 years or more, under the Payment of Gratuity Act, 1972. Gratuity derives its term from the word gratitude, and it is paid in a lump sum by the employer. An employee will get the gratuity upon his/her Retirement, Resignation, Demise, Disablement due to an accident or a disease, VRS, Termination, or Lay off.

How is it calculated?

For a gratuity amount calculation for the calculation of 5 years, 1 year is determined as 240 working days. On the other hand, for workers, involved in mining works and related fields, a year is determined as 190 days. "An organization with a workforce of 10 employees on a single day in the preceding 12 months are liable to pay gratuity." Even in case, the number of employees reduces to under 10, the organization will still have to pay the gratuity, according to the Act. Factories, mines, companies, ports, plantations, mines, and all those firms are liable to pay gratuity.

In the last month, a government notification mentioned, "2021, for the calculation of gratuity and cash payment in lieu of leave in respect of Central Government employees who retired on or after 01.01. 2020 and up to 30.06. 2021 are required to be made based on the rate of DA at 17% of basic pay."

Gratuity is calculated over the basic salary and the DA. 2 major factors to determine the gratuity are the last drawn salary and the total number of years of services. Here you can calculate your gratuity through this calculator - https://www.goodreturns.in/gratuity-calculator.html

Tax

However, a government employee is eligible for tax-free gratuity. On the other hand, for employers who are covered under the Payment of Gratuity Act, only the last drawn salary of 15 days will be exempt from the income tax from the employees.

New rule regarding gratuity of central government employees

The union government of India has recently notified the Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021 for the central government employees including civilian government employees in the Defence Services, who were appointed on or after January 1, 2004.

Regulation of claims to gratuity includes, any claim to gratuity shall be regulated by the provisions of these rules in force at the time when a government servant retires or is retired or is discharged or is allowed to resign from service or dies, as the case may be. In addition to that, the day on which a government servant retires or is retired or is discharged or is allowed to resign from service, as the case may be, shall be treated as his last working day and the date of death of a Government servant shall also be treated as a working day. The retirement gratuity will be equal to 1/4th of the employee's emoluments for each completed 6 monthly period of qualifying service, subject to a maximum of 16½ times the emoluments. The amount of retirement gratuity or death gratuity payable under the rule will not exceed Rs. 20 lakh.