Skip to main content

What is Gratuity and when do you become eligible for it?

 

What is Gratuity and when do you become eligible for it?

Gratuity is a sum of money that the employer pays to employee for services rendered in the company.



The Cabinet on Tuesday approved an Amendment Bill seeking to double tax-free gratuity for formal sector employees to Rs 20 lakh from the current limit of Rs 10 lakh.

With this amendment, the maximum limit of gratuity for employees in the private sector will fall at par with that of government employees.

As per the Amendment Act, the proposed raise in allowance will increase remunerations by 23.55 percent.

But, what is gratuity?

Gratuity is a sum of money that the employer pays to the employee for services rendered in the company. But, the sum is given once the employee completes 5 or more years in the same company.

The gratuity amount is completely paid by the employer unlike provident fund where the employee too contributes.

In India, there exists a Payment of Gratuity Act, 1972 for regulation of gratuity payments by the employer. The Act covers companies that have more than 10 employees employed at factories, mines, oilfields, plantations, ports, railway companies, shops or other related establishments.

It is applicable to all states in the country, except Jammu and Kashmir.

Eligibility criteria - According to section 4 of the Act, it covers any person who has completed 5 years or more with the company or an employee who is eligible for superannuation. A retired employee or an employee who has passed away or one suffering from any illness or disability are also eligible for gratuity.

Gratuity is calculated as 15 days last drawn wages for every year completed with the organisation. The 15 days wages is calculated by dividing the last drawn salary by 26 and multiplying the result with 15.

The maximum gratuity that can be paid is Rs 20,00,000, according to the section 4(3) of the Act.

As per the Act, gratuity is exempt from tax for government employee and employees covered under the Gratuity Act.

As per the assessment year 2016-17, gratuity received by government employees is fully exempt from tax. Statutory corporations are not included under this.

For gratuity received via death or retirement, the least of following amount is exempt from tax - Rs 10 lakh, gratuity actually received or (*15/26) X Last drawn salary** X completed year of service or part thereof in excess of 6 months as mentioned in the Article 10(10)ii.

For those who are not covered under the Act, half month's average salary multiplied by completed year of service or Rs 10 lakh or actual gratuity received is considered.

No company can now pay gratuity of more that Rs 20 lakh irrespective of the number of years of service completed. This limit is also applicable for gratuity received from different employers.

In case someone dies while in service and before the 5-year period, his/her gratuity is paid to the legal heir. To nominate a heir, a form F needs to be filled while joining the company.





Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds. Save Tax Get Rich

For further information contact SaveTaxGetRich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300

Popular posts from this blog

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...

Fortis Mutual Fund

Fortis Mutual Fund, a relatively new player, it is still to prove its case and define its position in the industry. In September 2004, it came onto the scene with a bang - three debt schemes, one MIP and one diversified equity scheme. And investors flocked to it. Going by the standards at that time, it had a great start in terms of garnering money. Mopping up over Rs 2,000 crore in five schemes was not bad at all. The fund house has not been too successful in the equity arena, in terms of assets. Though it has seven equity schemes, it is debt and cash funds that corner the major portion of the assets. Most of the schemes are pretty new, and the two that have been around for a while have a 3-star rating each. The last two were Fortis Sustainable Development (April 2007), which received a rather poor response, and Fortis China India (October 2007). Fortis Flexi Debt has been one of the better performing funds, after a dismal performance in 2005. It currently has a 5-star rating. None ...

Gold: It is safe & secure

RETURNS ON GOLD & ITS ETF’s RISE WHILE most of the popular asset classes are going through bad times, the yellow metal shines on. In fact, in the last one year, gold has given a return of more than 25% and currently trades at Rs 14,695 per 10 gm. Even gold exchange traded funds ( ETFs ) have appreciated substantially. Gold Gold Benchmark Exchange Traded Scheme ( BeES ) and Kotak Gold ETF have given more than 25% returns each in the last three months. Even as the equity markets have taken a hit with the Sensex losing around 46% in the last one year and real estate prices also witness a correction, investors’ preference has shifted to safe havens such as gold. On an average, most of the diversified equity mutual funds have fallen and real estate developers are offering discounts. Thus gold remains the safest bet. The appreciation in the gold prices is mainly due to its safe haven status. The key reason for gold to go up is lack of other investment opportunity. There is also a risk in...

Alpha - The relative performance

Alpha, the net performance of a component against the benchmark is an overlooked tool   Absolutely speaking, any bounce back now on markets should be the last for the year. We offcourse can be wrong and prefer to be judged on alpha (relative performance) as relative accountability is fine with us. According to Alpha India, the top outperformers in the weeks ahead should be Reliance Communications, Reliance Infrastructure, SBI, HDFC, ONGC, Larsen, Jaiprakash Associates, Maruti, Bharti and DLF. On the short side (reduce side), we have Ranbaxy, ACC, Sail, Tata Steel, Wipro, Tata Motors, Sun Pharma, TCS, M&M and Infosys.   Performance like everything follows the 80-20 rule, 80 per cent of your gains are going to come from 20 per cent of your portfolio. So why not give it a thought? The importance of alpha If alpha was so important, then why don ' t newspapers and websites publish it? Why alpha gets featured annually but not as intraday or daily event? Why don ' t we c...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now