According to current gratuity rules, an employee becomes eligible to claim gratuity benefit only if he/she has rendered five years of continuous service in the organisation.
How gratuity is calculated
According to the current formula for formal sector workers, the gratuity amount depends upon the tenure of service and last drawn salary. It is typically calculated according to this formula:Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26. According to this formula, the time period of over six months or more is considered as one year. This means if you have completed five years and seven months of service, the number of years would be considered as six years for calculation of gratuity benefit. On the other hand, if the service period is five years and five months, for gratuity calculation it will be considered as five years.
An employer can however give higher gratuity than the amount under the prescribed formula. But the Gratuity Act outlines the minimum limit which is exempted from tax.
Other Things To Know About Gratuity Benefits
Gratuity is a benefit received by an employee for services rendered to an organisation.
The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons.
The main purpose for enacting this Act is to provide social security to employees after retirement
"Considering the inflation and wage increase even in case of employees engaged in private sector, the government is of the view that the entitlement of gratuity should be revised for employees who are covered under the Payment of Gratuity Act, 1972," the government statement dated September 12 said.
