Gratuity Calculation and Limit
Gratuity’ as the name suggests, is paid to the employee by his/her employer as a gratitude for rendering services for a continuous period of not less than five years, it can be considered as a loyalty benefit for sticking with an employer for five long years and such duration is not mandatory in case of disablement or death of the employee.
Gratuity Calculation – The gratuity amount will be paid at the rate of fifteen days wages which is last drawn by the employee concerned as defined in Section 4(2) of the Payment of Gratuity Act, 1972. Here, the term wage is applicable as defined in Section 2(h) of the Minimum Wages Act, 1948.
Sample benefit of calculation as per the above-mentioned provision will be as mentioned below:
|Last Drawn salary||50000 bucks|
|Service Duration||6 Years|
|Service Compensation||15 days wage for each year of continuous service (6 years in this case)|
|Gratuity Benefit will be||50000/15 = 25000*6 = 1,50,000|
The above benefit can be availed on resignation by the concerned employee as well apart from retirement, death or disablement due to accident or disease. Nominee or legal heir can claim the gratuity amount if the employee is expired during the service.
The term ‘Continuous Service’ for a general IT or ITES company means 240 days, that means an employee should have worked for at least 240 days in a year to consider that year as a continuous service duration. This duration will differ from the kind of work an employee is doing, the duration for specific work is defined in Section 2A of the Payment of Gratuity Act, 1972. In case of dispute, the duration can be proved with the help of register maintained by the employer or the salary/pay slip provided by the employer, usually, pay slip contains the number of days for which the wages are paid.
Gratuity Limit – The amount of gratuity payable to an employee shall not exceed 30 lakh rupees as per the latest revision made under 2019 interim budget previously the limit used to be 10 lakh rupees only. The Central Government may from time to time notify/revise the amount defined in Section 4(3) of the Payment of Gratuity Act, 1972.