How to calculate gratuity amount using gratuity formula in 2019? 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 2019
Let us understand Gratuity rules for 2019 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 2019
Who is eligible for gratuity in 2019? 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 2019
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 2019, 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 2019, 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 2019 – 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. 30 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.
RENU JOSHWA says
February 7, 2019 at 1:55 pmI 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.
MoneyChai says
February 7, 2019 at 1:58 pmHi Renu
As per rules, you would be eligible after 5 years. By March/April 2019, you will complete around 4 years.
Lorraine says
July 2, 2019 at 2:15 pmI have been working for he last 5 years in this company it is a foreign company with 4 staff am i eligible for gratuity??
Sri says
March 7, 2019 at 2:59 pmHi ,
I have joined on August18 2014 and my last day would be May 14 2019. Am I been eligible for gratuity ?
Monu Gautam says
March 8, 2019 at 11:10 amI 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.
Tanveer ahmed says
March 9, 2019 at 4:32 pmI m joined company 27 january 2015 to untill now. I m working same company. Can i get my gratuity as per UAE law
MoneyChai says
March 9, 2019 at 8:10 pmHi Tanveer
I am not aware about UAE law. It is better to ask your company.
Vikas Thakur says
March 15, 2019 at 8:34 pmHow 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
CHANDRASEKARAN says
March 23, 2019 at 3:42 pmsir 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.
CHANDRASEKARAN says
March 23, 2019 at 3:49 pmsir 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.
Sai says
March 26, 2019 at 7:41 pmHi ,
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
sangeetha mahalingam says
April 23, 2019 at 4:02 pmHi,
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
MoneyChai says
April 23, 2019 at 4:30 pmHi Sangeetha
As per the rules, you would be eligible for gratuity after 5 years of joining, which would be be 2020.
Javaid Ahmad says
May 7, 2019 at 8:10 pmI joined an institution on 7 March 2009 till 17 April 2019 am I eligible for gratuity
MoneyChai says
May 7, 2019 at 8:36 pmYes, as per the rules, you are eligible for gratuity.
Kogga n says
May 10, 2019 at 2:21 pmMy 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. …
Juliet says
May 11, 2019 at 6:32 amI 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?
MoneyChai says
May 30, 2019 at 6:05 pmYes Juliet, You are eligible for gratuity.
Rahul Shah says
May 16, 2019 at 10:49 amI 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?
MoneyChai says
May 30, 2019 at 4:56 pmNo, It has to be minimum of 4 Years 8 months.
Ranjeet says
June 19, 2019 at 11:12 amHi,
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?
MoneyChai says
June 19, 2019 at 8:55 pmSome companies do deduct.
Suraj Bhekat says
June 20, 2019 at 10:22 amHi,
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.
MoneyChai says
June 20, 2019 at 8:28 pmYes Suraj, you should be eligible for gratuity.
Vaishali Moon says
June 24, 2019 at 6:31 pmWill I 4 years and 6 months completion of service eligible for Gratuity
Vaishali Moon says
June 24, 2019 at 6:32 pm4 years 6 months ( Dec 2014 to June 2019)
MoneyChai says
June 25, 2019 at 10:13 amHi Vaishali
4 Years 8 months is the minimum criteria.
divya says
June 28, 2019 at 11:11 amHi 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
MoneyChai says
June 28, 2019 at 11:54 amHi Diyva
Yes, you are eligible for the gratuity.
Sarika says
July 3, 2019 at 5:01 pmHy..
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..
MoneyChai says
July 4, 2019 at 4:41 pmHi Sarika
I am not sure, you need to confirm it with you HR as you had taken leave without pay.
pradeep kumar nath says
July 13, 2019 at 7:54 ami,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
MoneyChai says
July 15, 2019 at 8:51 pmHi Pradeep
Since you are an employee of security agency, you will not be eligible for gratuity.
kamal manocha says
July 24, 2019 at 10:53 amHi,
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
MoneyChai says
July 24, 2019 at 2:56 pmHi Kamal
Yes, you should be eligible for gratuity since you will complete 4 years and 9 months in your job.
Robi Nayak says
July 26, 2019 at 1:07 pmRespected 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.
MoneyChai says
July 26, 2019 at 1:22 pmHi 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.
Manish Buddha says
August 16, 2019 at 4:08 pmI 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
suresh Arora says
August 19, 2019 at 4:17 pmDear 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.
MoneyChai says
August 19, 2019 at 9:20 pmHi Suresh
Yes, it will be paid.