New Gratuity Rules-Gratuity Calculation Full Details

Before You know about Gratuity Rules you should also know about What is Gratuity Act?. And how to calculation of gratuity.

Do you know why and when employees get Gratuity?. The government is about to make some changes to the gratuity rules. According to new gratuity rules, in a company that has more than 10 employees, the employer has to pay gratuity to every employee of the institute. Under the payment of gratuity act 1972, the government has increased from 10 lakh to 20 lakh rupees.

Gratuity Act is the amount given to an employee on behalf of the institution or employer. An institution or employer must have an employee to work for at least five years. Usually, this amount is given when an employee leaves the job or is removed from the job or he retires. In the event of death of an employee due to any reason or leaving his job due to accident, he or his nominee gets the amount of gratuity.

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Gratuity Rules 2020-21

  1. #Gratuity to be received before 5 years?

A new provision in Social Security Code 2020 changes in fixed-term employee’s gratuity rules payment. The idea of giving gratuity on fixed term i.e. fixed term or contract employee even on 1 year job. Contract employee will get gratuity according to the day, it is not necessary to fulfill the condition of 5 years for gratuity. Its change now under new rules gratuity.

2. #Why Changes in Gratuity Rules?

Job security reduced gratuity compared to earlier. Companies which will be entitled to gratuity will be curbed. PF(Provident Fund) can be arranged as proposed to keep gratuity a part of CTC(Cost to Company).

3. #Is Gratuity Part of Salary?

Keeping part of gratuity salary depends on the company. Most of the firms make gratuity part of CTC.

CTC(Cost to Company) means the company that is spending on you. The gratuity is not written in your letter if there is any condition for gratuity in your letter. You will get gratuity only after 5 years.

4. #Gratuity rules before 5 years

Gratuity can be found before 5 years in some situations. If employee dies before 5 years period employee is crippled, not able to do a job in these situations only get gratuity before 5 years possible.

Benefits of New Gratuity Rules

  1. #How Much Tax Rebate on Gratuity

Gratuity is tax exempt under Income Tax law. Tax exemption on gratuity is available up to a certain limit. Tax free gratuity has now been increased to rs 20 lakh. Earlier, the tax free gratuity limit was rs 10 lakh. notification was issued on march 29, 2018.

2. #What is the maximum gratuity available?

No maximum limit of gratuity is fixed. The company can give gratuity according to its own. Right now, gratuity up to 20 lakh is tax free. More than 20 lakh gratuity will be taxed.

Gratuity Calculation

There are two types of calculation of Gratuity.

1- Employees covered under the Act

2- Employees not covered under the Act

The central government has made a big change in the rules of gratuity payments of employees. As per the changed rules, provision for payment of gratuity has been made for fixed term employees. There will be no minimum service tenure for this. For the first time, an employee who is working for a specified period is given the right to social security like a regular employee.

#Gratuity Formulas

Currently, gratuity is calculated on the basis of a fixed formula. Standards have been set in this. Understand this calculation.

Total gratuity amount=(last salary)x(15/26)x(how many years worked in the company.

Les’s understand with example

#Example 1- Employees covered under the Act

Suppose someone worked in a company for 6 years 8 months. His basic salary while leaving the job was 15000 rupees a month. In such a situation, according to the formula, the amount of his gratuity will come out in this way – 15000x7x15/26=60577 rupees.

#Example 2- Employees not covered under the Act

If someone worked in the company for 6 years 8 months. His basic salary while leaving the job was 15000 rupees a month. This company does not come under the purview of the gratuity act. In such a situation according to the formula, the amount of gratuity will come out in this way.

15000x6x15/30= 45000 rupees (those not coming in a act will get 15,777 rupees less than the employees coming in the act.)

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