Gratuity money is deducted from the salary of every employee. According to the Gratuity Act 1972, if a person has not worked continuously for 5 years in his company and is leaving the job, then he is not entitled to the amount of gratuity. But there are some special circumstances when even without completing the period of 5 years, an employee can get the amount of gratuity. Let’s know about this rule.

What is rule?

Under Gratuity Section 1972, if you want to take advantage of the full amount of Gratuity, then you must have worked for at least 5 years in the company. But if an employee dies due to an accident, then in such a situation his family will get the benefit of the amount of gratuity. On the other hand, if an employee becomes disabled in an accident and is unable to work again, then he can avail the amount of gratuity even without completing the period of 5 years. While joining the job, the company gives Form F to every employee to fill. After this you become eligible to claim gratuity.

What is Gratuity?

A part of the salary of every employee is deducted for Gratuity and Employees Provident Fund Organization. For gratuity, a small part has to be given to the employee and a large part to the employer. When the employee works continuously for 5 years in a company, then he becomes entitled to take this gratuity. When the employee retires or leaves the company, then this gratuity money has to be given to the employee of the company.

What is the formula of Gratuity?

Let us tell you that the formula of gratuity is the last salary received by the employee x the number of days worked in the company x (15/26). If you are getting the benefit of gratuity after working for less than 1 year, then you will get double the amount of basic salary as gratuity. At the same time, up to 6 times of the basic salary is available on the job for 1 to 5 years. On the other hand, for more than 20 years, you can get gratuity amount up to 33 times of the basic salary.

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The amount of gratuity is decided under a formula. However, if the company wants, it can also give more than the fixed amount. After working for a long time, the employees get a substantial amount as gratuity, which is helpful in their needs. But is the amount of gratuity taxable or is it exempt from tax? Not many people know about this. Let us tell you-

Tax rules on Gratuity

According to the prescribed formula for Gratuity, whatever amount is made by you, it is tax free. Whatever amount will be in addition to that, tax is levied on it. According to the rules, tax exemption cannot be given on the amount of gratuity exceeding Rs 20 lakh. Even if she sits more according to the formula.

What is the formula of Gratuity

There is a formula to calculate gratuity – (last salary) x (number of years worked in the company) x (15/26). Last salary means the average of your last 10 months salary. Basic salary, dearness allowance and commission are included in this salary. Due to 4 days of Sunday in a month, 26 days are counted and gratuity is calculated on the basis of 15 days. 

Gratuity rules

• If 10 or more people work in a private or government company, then that company should give the benefit of gratuity to all the employees. Apart from the company, shops, mines and factories come under this rule. But any employee becomes entitled to gratuity only after working in that company for 5 consecutive years. If the job is of 10 or 20 years, then a good amount of gratuity is available, so that the person can fulfill all his responsibilities. 
• It has not been a full five years for a person working in the company, but even if the employee has worked in the company for 4 years and 8 months, his service is considered to be for full 5 years. In this case, he gets the amount of gratuity according to 5 years. However, gratuity is not available in less than 4 years and 8 months.
• If an employee dies during the job, then the entire amount deposited in his gratuity account is given to his nominee. In such a case the condition of minimum 5 years of service is not applicable.
• When the company or organization is not registered under the Gratuity Act, the employees are not covered under the Gratuity Act. In this case, it is the discretion of the company whether to give gratuity or not. But if the company still wants to give gratuity to an employee, then its formula is different. In this case, the amount of Gratuity will be equal to half a month’s salary for every year. But the number of working days in a month will be considered as 30 days, not 26.

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