HOW MUCH GRATUITY IS PAYABLE TO AN EMPLOYEE?
The amount of gratuity payable can be calculated by using two formulae
(Last drawn monthly BASIC+DA) *15/26* (No. of years worked rounded of)
(Last drawn Yearly BASIC+DA) * 4.81% * (No of years worked rounded of)
NOTE: Calculation of gratuity by exit formula is preferred Since it is more cost-effective for the company as compared to the entry formula.
As per the Gratuity Act of 1972,
• Calculation of gratuity is based on an employee’s half month’s salary for every year that has been completed. The period of service of an employee is taken as a whole year for the calculation of gratuity. Any service which is in excess of 6 months is considered as one year.
• In case of death or disablement gratuity is payable up to the date of death or Disablement of the employee irrespective of whether the tenure of service of the employee of 4 year 240 days (5 years) was completed or not.
However, In case of death or disablement, Gratuity is only paid after completion of 1 year service.
An employee can nominate one or members of his or her family by filling the FORM “F” while joining the company to receive the gratuity benefit after the death of the employee.
• The gratuity received by an employee during the tenure of his /her entire service is tax exempted up to the statutory limit of Rs 20 Lakh.
• Gratuity payment to the employee is done within 30 days of the last working day of the employee.