look news india
Gratuity Tax Exemption Limit: The government has made a major change in the limit of gratuity received by employees. The Union Cabinet has increased the tax free limit of gratuity from Rs 20 lakh to Rs 25 lakh. Now there will be no tax liability on this amount of gratuity. This gift has come at a time when employees are continuously protesting for their rights. Till now the limit of tax free gratuity was Rs 20 lakh. Let us tell you, in the year 2019, the government had increased the limit of tax free gratuity from Rs 10 lakh to Rs 20 lakh. But, how will you know how much gratuity is being made on your salary and how much amount you will be entitled to.
How is gratuity received?
A service class employee gets gratuity on 5 years of service. Under the Payment of Gratuity Act, 1972, employees of a company with more than 10 employees are entitled to gratuity. However, this may change. In the new formula, the benefit of gratuity can be given for 1 year instead of 5 years. The government is working on this. It is possible that a decision on this may be taken in the new wage code. If this happens, it will benefit crores of private and government sector employees.
When is gratuity received?
Gratuity is the amount given by the organization or employer to the employee. It is mandatory for the employee to work with the employer for at least 5 years. Usually this amount is given when an employee leaves the job or he retires. Even in case of death of an employee due to any reason or leaving the job due to an accident, he or his nominee (Gratuity Nominee) gets the gratuity amount.
What is the eligibility for gratuity?
As per the rules of the Payment of Gratuity Act 1972, the maximum amount of gratuity to be paid can be up to Rs 20 lakh. For gratuity, it is mandatory for the employee to work in the same company for at least 5 years. An employee is not eligible for gratuity if he works for less than this period. Gratuity is not paid even if you leave the job within 4 years and 11 months. However, this rule does not apply in case the employee leaves the job due to sudden death or accident.
Payment of Gratuity Act 1972
The 'Payment of Gratuity Act' was enacted in the year 1972 with the aim of protecting the interests of employees.
This law covers employees of all establishments working in mining areas, factories, oil fields, forest areas, private companies and ports where 10 or more employees work.
Gratuity and provident fund are completely different.
The entire amount of gratuity is paid by the company (employer). At the same time, the employee also contributes 12 percent to the provident fund.
Which institutions come under the purview of the Act?
Any company, factory, institution where 10 or more employees have worked on any one day in the last 12 months will come under the Payment of Gratuity Act. Once a company or institution comes under the purview of the Act, it will have to remain within its purview. Even if the number of employees in a company is less than 10, it will still remain within the purview of the Act.
Gratuity is decided in two categories
In the Gratuity Payment Act 1972, to decide the formula for the amount of gratuity to be received by the employees, employees have been divided into two categories. The first category includes those employees who come under the purview of this Act, while the second category includes those employees who are outside this Act. These two categories include employees working in both private and government sectors.
type 1-
Employees who are covered under the Payment of Gratuity Act 1972.
Category 2-
Employees who are not covered under the Payment of Gratuity Act 1972.
Formula for determining the amount of gratuity (for employees covered under the Act)
Last salary x length of service x 15/26
Last salary-
Basic salary + dearness allowance + commission on sales (if any). In this formula, assuming 26 working days in a month, an average salary of 15 days is given to the employee.
Period of employment-
In the last year of employment, employment of more than 6 months will be considered as one complete year, i.e. in case of 6 years and 8 months of employment, it will be considered as 7 years.
Example-
Suppose someone worked in a company for 6 years and 8 months. His basic salary at the time of leaving the job was Rs 15,000 per month. In such a situation, according to the formula, their gratuity amount will be calculated like this.
15000x7x15/26= Rs 60,577
Gratuity Formula (for employees not covered under the Act)
Last salary x length of service x 15/30
Last salary-
Basic salary + dearness allowance + commission on sales (if any). In the formula, assuming 30 working days in a month, an average salary of 15 days is given to the employee.
Period of employment-
For such employees, a period of not less than 12 months is added to the last year of employment. For example, if an employee has worked for 6 years and 8 months, then it will be considered only for 6 years.