How to calculate gratuity amount using gratuity formula in 2020? The latest amendment bill increased the new limit of gratuity to Rs. 20 lakhs . This article covers
- Gratuity Formula – Last drawn salary X years of service X 15/26.
- Gratuity New Limit – Rs. 20 Lakhs
- Gratuity Eligibility – 5 Years of Services
- Rules – Gratuity is Mandatory
- Gratuity Calculations
What is gratuity in salary slip in India?
Gratuity is a sum of money paid by an employer to the employee. Nowadays, gratuity is paid by both the public sector and private sector employers. Generally, gratuity is included in your salary as a part of the cost to the company (CTC) when the employee joins the company. He is eligible to claim gratuity only after the expiry of a particular amount of time or on retirement, whichever is earlier.
The gratuity in most cases forms a part of the CTC to the company. This does not form a part of the salary slip.
What is percentage of gratuity in CTC?
Gratuity percentage is a not a part of CTC, it is a part of basic salary.
What percentage of basic salary is gratuity?
Gratuity is 4.81 percentage of basic salary.
Is Gratuity same as tip?
No, gratuity is not same as tip. Gratuity is the monetary benefit given to the employees for being associated with the company for long term.
Gratuity Rules 2020
Let us understand Gratuity rules for 2020 with the help of FAQs
Is gratuity mandatory? Do companies have to pay gratuity?
Yes, gratuity is mandatory in India for companies having ten or more employees in the twelve preceding months. This is mandatory for both public and private limited companies. Under the Payment of Gratuity Act, the employee can demand and receive gratuity as a part of his or her terms of employment.
How many years to be completed for gratuity?
Gratuity on active employment, VRS or voluntary retirement scheme is applicable only if the employee has completed a minimum of five years. The same provision applies for termination also.
20 lakhs gratuity Limit- Latest News- Gratuity Amendment Notification 2019
As per the latest notification, The maximum amount limit of gratuity has recently increased by the Parliament under the Payment of Gratuity Act to 20 lakhs from the previous amount of 10 lakhs. The latest amendment news came in March 2018.
Gratuity Eligibility 2020
Who is eligible for gratuity in 2020? Is gratuity available for all employees?
In order to be eligible for gratuity, the number of employees in the company has to be more than 10. Every employee should also have completed a minimum of 5 years of uninterrupted service in the company. The Act does not distinguish between temporary staff and permanent staff for the calculation of gratuity. As long as temporary staff are called employees, they will also be eligible for receiving benefits under the Payment of Gratuity Act 1972. As per the Act, uninterrupted service is continuous employment. Any disruptions in employment due to the following reasons will not disadvantage the employee and he will still be deemed to be in uninterrupted service – disruptions due to sickness, accident, allowed leave, layoff, strikes, lockouts etc.
What happens if the employee is not able to complete the five years of service ?
In case the employee is unable to complete the five years of service due to death or disablement, he will be awarded gratuity as if he had originally completed five years of service. That is, he will be deemed to have completed five years of service for the purpose of the Act. But the amount of gratuity will be on the actual number of years completed and not five years.
In all other cases, the employee will not be eligible for receiving gratuity.
Are there any nuances for calculating the five years? Is it mandatory the employee has to work every day in a year ?
According to the Payment of Gratuity Act, the employee should have at least worked for 190 days out of 365 days in case he works below the ground. All kinds of mining activities come under this rule.
In cases where the employee works above the ground, he should have at least worked for 240 days out of 365 days.
Therefore, the employee need not work every day in a year to get the benefits of gratuity
Gratuity Formula 2020
How is gratuity calculated?
Gratuity formula, for calculation of gratuity,depends on the period of employment, last drawn salary, and number of completed years of service.
Gratuity Formula – Covered under Payment of Gratuity Act 1972
The Gratuity formula for employees in 2020, covered under the act is
Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26.
What is 15/26 in Gratuity calculation?
Total No of working Days in a Month -26 Days
Number of days employee has worked- 15 Days
Gratuity Formula – Not covered under Payment of Gratuity Act 1972
The Gratuity formula for employees in 2020, not covered under the act is
Gratuity = Average salary X ½ X No. of years of service
where average salary is basic plus DA plus commission.
Gratuity Calculation 2020 – Example
Mr A works for 10 years in ABC Ltd. ABC Ltd falls under the ambit of the Payment of Gratuity Act. His last received salary is 26000 Rs per month(basic plus DA). How do we determine the amount of gratuity payable to Mr A?
In order to find out the amount, we should first understand the formula for calculation of gratuity.
Gratuity = Last drawn salary * 15/26 * No. of completed years of service.
In this case, the gratuity amount will be as Rs 26000 x 15/26 x 10 years= Rs.150000.
How to calculate gratuity in death case?
In the case of death of an employee, even if the employee works for less than the five years, he will be eligible to get gratuity for the number of years of completed service.
Gratuity Taxation
Is gratuity taxable?
Let us check if the gratuity is taxable-
For companies covered under the Payment of Gratuity Act, the least of the following is exempt from tax –
- Last salary (basic + DA)* number of years of employment* 15/26;
- Rs. 20,00,000
- Gratuity Actually received
For employees not covered under the Payment of Gratuity Act, the least of the following is exempt from tax –
- Last 10 month’s average salary (basic + DA + commission)* number of years of employment* 1/2;
- Rs. 20,00,000
- Gratuity actually received
Gratuity limit exemption for Cenral govt employees and State govt employee
Any gratuity paid by the government to its employees is fully exempt from tax, be it a central govt employee or state govt employee
- Example One – Mr A works for the State Government. He has worked for the last 15 years, and decides to retire from his service at the end of the 15th The amount of gratuity paid to him is Rs. 35 lakhs. Determine the amount of tax payable by Mr. A.
Since Mr A is a government employee, any gratuity amount would be fully exempt from tax. Therefore, Mr A does not have any tax liability on his gratuity even though it has exceeded the mandated amount of 20 lakhs.
How to calculate gratuity limit exemption for private sector employees?
- Example Two – Let us now assume Mr A works for a private sector company, and not the government. He has worked for the last 15 years.Then he decides to retire from his service at the end of the 15th year.The amount of gratuity paid to him is Rs. 35 lakhs. Determine the amount of tax payable by Mr. A.
In this scenario, since Mr A does not work for the government, gratuity above Rs. 20 lakhs will be taxable. The amount specified is Rs. 20 lakhs or 15/26 of the last drawn salary multiplied by the number of years of completed service, whichever is lower. Assuming 20 lakhs is lower, Mr A is liable to pay tax on the excess amount, which is 15 lakhs.
Is both central and state government employees’ gratuity exempt from tax?
Yes, the exemption is valid for both Central and State governments.
Gratuity forfeiture by the employer
In case an employee is
- Terminated for any act due to his negligence or willful omission,If this act results in any loss or destruction of property, the employer can forfeit the employee’s gratuity.
In case Mr A, due to his negligence, causes a fire in the factory. The company terminates him after 8 years of service.He will not be eligible for gratuity if the employer chooses to forfeit the same.
I have joined company on August 2015 and till now I am working for the same company. Will I be eligible for gratuity by March / April 2019.
Hi Renu
As per rules, you would be eligible after 5 years. By March/April 2019, you will complete around 4 years.
I have been working for he last 5 years in this company it is a foreign company with 4 staff am i eligible for gratuity??
Hi ,
I have joined on August18 2014 and my last day would be May 14 2019. Am I been eligible for gratuity ?
I have joined company on September 2014 and till now I am working for the same company. Will I be eligible for gratuity by March / April 2019.
I m joined company 27 january 2015 to untill now. I m working same company. Can i get my gratuity as per UAE law
Hi Tanveer
I am not aware about UAE law. It is better to ask your company.
How much gratuity I will receive, I am in Army and my basic pay is 44000/- and DA is 4657 and my total service is 20 years
sir Iam a cooperative urban bank employee.ple. clear my dobut. I Was worked in my bank as cashier from18-02-1991 to 31-05-1998. I regin.my cashier post on31-05-1998 and joint secretarey post on 01-06-1998.now I WILL REDIER ON 31-03-2019.what is my total sevice year.
if an employee complete his service which is 39years 6 months and his last pay was 45000 including DA what is his gratuity amount
Your Gratuity amount is 1012500.
sir I am a cooperative urban bank employee.ple. clear my dobut. I Was worked in my bank as cashier from18-02-1991 to 31-05-1998. I regin.my cashier post on31-05-1998 and joint secretarey post on 01-06-1998. my retierment will comes on 31-03-2019.what is my total sevice year.
Hi ,
I worked in Software company which have 5 working days per week, I joined in the company on June 11,2014 and my last day was 14 March,2019. Could you please confirm whether I am eligible for gratuity.
Thanks in advance
Hi,
I worked in genuis consultants company ( Clent of DBOI Gobal Service Pvt ltd, BLR). I joined in the company on Nov15, 2015 and my update working(2019). Could you please confirm whether I am eligible for gratuity.
Thanks in advance
Hi Sangeetha
As per the rules, you would be eligible for gratuity after 5 years of joining, which would be be 2020.
I joined an institution on 7 March 2009 till 17 April 2019 am I eligible for gratuity
Yes, as per the rules, you are eligible for gratuity.
My wife veena worked in nationalised bank she recently applied for volantary retirement she completed actualy 32years7months.she has taken total eight months five days as LOP on medical ground .out of eight months Lop Except for 91days all other days LOP leave not affected for her senority and increment.only 91days LOP affected her senority and postponed her incriment by 91 days..now my question is my wifes service while claiming graduity no of completed service will be reduced by 8 months 5days or only by 91days. .pl guide .is she eligible for graduity benefits for her entire period of service 32 years7months ? All her LOP is sanctioned by her higher authority and head office. …
I have joined in a private institutions in June2012 and still am working .
in between from from may 2015 to Nov2015 I was in maternity leave.
Am I eligible for graduvity?
Yes Juliet, You are eligible for gratuity.
I have completed 4.3 Year of my service.My attendance in company is 99.5 Percent.So,According to law of 240 Days,am i eligible for graduity?
No, It has to be minimum of 4 Years 8 months.
Hi,
I have joined in ltd company and they are not deducted any PF amt from salary. And not contributing any amt in PF.
But deducting Rs.1666 as benefits of Gratuity from salary every month.
Pls snuggest.. is this right?
Some companies do deduct.
Hi i am working in private company from the period of 8 Dec 2014 to 26 Aug 2019 the total period is 4 Years 8 Months 18 Days.
Could you please confirm me i am eligible for gratuity.
Yes Saeed, You would be eligible for gratuity.
Hi,
I worked in genuis consultants company ( Clent of Lupin Pvt ltd). I joined in the company on Sep 1, 2014 and my update working(30 Jun 2019). Could you please confirm whether I am eligible for gratuity.
Yes Suraj, you should be eligible for gratuity.
Will I 4 years and 6 months completion of service eligible for Gratuity
4 years 6 months ( Dec 2014 to June 2019)
Hi Vaishali
4 Years 8 months is the minimum criteria.
Hi am currently working in a company from past 4 years and 10 months am i eligible for gratuity,since i will be quiting my job next month
Hi Diyva
Yes, you are eligible for the gratuity.
Hy..
I am working in a co op bank, i will be completing 5 years of working in september 2019. Bt during this period, i was on without pay maternity leave atleast fr 3/4 months. I am going to quit my job in september Or october 2019. So as per the gratuity rule of 240 days of working, will i be eligible for payment of gratuity?
N if possible for you then will u please tell me in which month I have to resign to get the benefit of gratuity.. Please. Looking forward to ur reply. TIA..
Hi Sarika
I am not sure, you need to confirm it with you HR as you had taken leave without pay.
i,am join a brave security service agency through at Hdfc bank odisha 20-december-2014 and the security agency changed exit to 30- june-2019 now me already working same bank other security agency 1-july-2019 to continue can me eligible of gratuity
Hi Pradeep
Since you are an employee of security agency, you will not be eligible for gratuity.
Hi,
I worked in Manufacture company ( Bando india pvt ltd ). I joined in the company on Nov 1, 2014 and my update working(31 July 2019). Could you please confirm whether I am eligible for gratuity.
Thanks
Hi Kamal
Yes, you should be eligible for gratuity since you will complete 4 years and 9 months in your job.
Respected team
I have joined in a private limited company on 1st July 2013 & leave the company on 13th June 2019 due to some personal emergency. I do not provide any kind of notice period. So they are told me that as per company policy I am not eligible to get my last few days salary. Its very much okay for me. But could you please confirm whether I am eligible for gratuity or not. Because my previous employer told me that they’re not provided any kind of gratuity to me & there is nothing about any clause written in my offer / appointment letter. So please confirm me that could I eligible for gratuity & what are the process if my previous employer refuse to pay my gratuity.
Hi Robi
If the employees in your previous company are more than 20. Then the employer need to pay the gratuity as you have completed 5 years, whether it is mentioned in your offer letter or not.
I will resign from a PSU owned by state govt in Feb 2020 due to health reasons. I joined as a permanent employee in Feb 1997. I am currently on leave for health reasons – HAPL – half average paid leave. For calculation purpose in gratuity, my basic plus da will be counted as full or only half as last drawn salary will be half in January 2020
Dear Team,
The company’s retirement age was 58 but I am still working (age 62) should gratuity will be paid for this period also(i.e from age 58-62). Please explain.
Hi Suresh
Yes, it will be paid.
I had joined PROPRIETORAHIP FIRM IN APRIL 2015 AND AFTER 2 YEARS IN 2017 EMPLOYER OF THE COMPANY CONVERT HIS ALREADY CREATED PRIVATE LTD. CO IN 2016 CONVERT INTO LLP IN 2017 AND MOVE ALL EMPLOYEES IN THIS COMPANY. SO I CURRENTLY WORKING EMPLOYER LLP COMPANY LAST 2 YEARS 5 MONTHS.
PLEASE SUGGEST ME IF I COMPLETE 4 YEAR 8 MONTHS THEN I ELIGIBLE FOR GRATUITY.
Hi, I worked in Manufacture company, Asst Manager ( HKD International ( CEPZ) Ltd. please kindly let me know, will gratuity get an officer of the company? Or just get workers?
Hi Nurul
Everyone is eligible for gratuity.
Hi,
My service period is March,2014 to Dec,2018. Work was 5 days a week.
Will i be eligible for Gratuity payment from my previous organization.
Regards,
Amit
Yes Amit, Ideally you should be eligible.
How? he has completed his tenure the his company before 5 years,he left the organization before 3 months as 5 years should be completed in 2019,March only.
4.8 year work experience all india pvt company applicable any exception is there sir. Im working same organisation 4.8 years and i want to know my DA. In my payslip not mentioned any DEAR NESS Allowance. Where i can find the DA amount or any standard DA are following all pvt company?
i am working in a private hospital since 24 yrs. this hospital is going to close down because of losses.
will we get Gratuity? i have heard that if company is closing down then they have to give double the gratuity( in some other heading). what are the rules?
Payment of gratuity act 1972 and in CCS (pension) rule, 1972, no formula is given for calculating the gratuity. Units of central govt are calculating the gratuity using the formula 15/30 not using 15/26. Is it correct ?
My father have worked in government as class 2 officer,he has been given compolsory retirement as punishment,what are the benefits will be snatched away from us??
Hi Joy
I am not sure about this.
I have joined a company in December 2012 and left in 2015 then again I joined the same company in 2018 and currently working there. In Total, I have completed 5 years and 240 days. Am I eligible for gratuity.
Hi Adarsh
It should be a continuous service of 5 years. You are not eligible for gratuity.
I joined a company in July 2015 & now in Jan 2020 am I eligible for Gratuity.
I joined a company in 2 May 2015, am I eligible for Gratuity after 4 May 2020?
Hi Samarath
Yes, you would be eligible for gratuity.
I joined a company 1 August 2015. Am I eligible for the gratuity after 1st of April?
Hi , I work for an organisation from 4jan 2016 .. will work till Nov 2020. Am I eligible for gratuity?
Hi Richa
Yes, you should be eligible.
I did’nt get the point not covered under P.G act as on website of P.G its written
Seasonal 7×last drawn÷26 × time
Or pieace rate empolye what is acutly is not covered in under P.G act ? Please RepLy thankyou btwn its very helpful and wonderful post You are kind to share your knowledge with us Thankyou Good Luck Stay safe
Hi Dolly
You will have to confirm it from your employer.
My dad worked as government aided lecturer fir 23years and expired recently. His basic pay is 147000/- and Da is 7000 what is the gratuity we get. What is the highest limit on gratuity. Kindly help me out .
Sir, I have to ask, for grtuity ,PF,ESI, deduction is must?
I have join date 5-01-2017 and I will leaving the company on 10- 12_2020
I am eligible for Gratuity?
Hi,
i joined an Pvt ltd company on 1 Nov 2010.
But due to covid not joining office, then company given notice after i had resigned on Oct 2020 then I eligible for gratuity.
Hi Ramesh
Yes, you would be eligible for gratuity.
I will be retiring from a PSU in January 2021, I am drawing salary of 1.25 lacs (Basic +DA) and have rendered a service of 35 years and 143 days. What will be by Gradutaty amount
Hi Sartaj
Please confirm it from your HR department.
I am working with M/s Bhaskar resources pvt Ltd. From 1.11.2018 to 6.02.2021.I will be eligible for the gratuity.?
If you have completed 4 years and 240 days, you would be eligible for gratuity.
Hi , I work for an organisation from 2 may 2016 .. will work till jan 2021. Am I eligible for gratuity?
Hi Deepa
If you have completed 4 years and 240 days, you would be eligible for gratuity.
Hi I worked in an organisation from Jun -2016 to Feb -2021, which is 4.7 yrs, will I be eligible for gratuity? If yes please share the Govt act document.
Hi Deepth
Its 4 years and 240 days.
I worked in my company about 15 years and one month and now I resigned from my service. My basic salary is 15000/- per month. How many amount can I get as per gratuity act?
Hi I’m working in pharma industry Last 4 year 10 months & 18 days so I’m eligible for graduaty or not