How to compute gratuity for employees working in India?
Gratuity is a sum of amount received by an employee during his/her resignation or retirement from his/her employer for the service offered to the company over a period of years. In India, under the Payment of Gratuity Act, 1971, an employee who completes 5 years of service in a company is eligible for the gratuity amount. Any amount that is above and over the prescribed limit is liable to tax. The upper limit of Rs 10 lakhs for the tax concession.
In India, The gratuity amount of an employee is calculated using the basic salary and the dearness allowances if any.
Let us learn here how to calculate gratuity in India at the end of your service.
Employee Gratuity in India = [ (Basic Pay + D.A) x 15 days x No. of years of service ] / 26
DA is the Dearness Allowance
26 represents number of working days in a month
Consider, your basic pay is Rs.17,500 and the dearness allowance provided per month is Rs.1500 and the year of service completed is 25 years. Calculate gratuity amount received by an employee according to Indian Law.
Step 1: Given,
Basic Pay = 17500
Dearness Allowance = 1500
Years of Service = 25
Step 2: Applying the values in the formula,
Gratuity = [ (Basic Pay + D.A) x 15 days x No. of years of service ] / 26
= [ (17500 + 1500) x 15 x 25 ] / 26
= [ 19000 x 375 ] / 26
= 7125000 / 26
Employee Gratuity in India = Rs. 274038.461