How Much Gratuity Can You Get After 7 Years With A ₹35,000 Salary? Check The Calculation
The recent update to gratuity rules by the government has increased the tax-free limit from ₹20 lakh to ₹25 lakh, benefiting employees eligible for gratuity payouts. Gratuity is a financial benefit provided by employers to employees who have served for at least five years, and it is typically given when an employee retires or leaves their job. However, in cases of death or serious injury, gratuity may be paid regardless of service duration. Here’s an in-depth look at how gratuity is calculated and eligibility criteria.
Gratuity Eligibility : Key Requirements
Under the Payment of Gratuity Act 1972, employees are eligible to receive gratuity if they have served a minimum of five years in the same company. However, this five-year minimum does not apply if an employee's departure is due to an accident, disability, or sudden death.
To receive gratuity, employees must meet the following:
- Minimum service period: At least 5 consecutive years with the same employer.
- Exceptions: In cases of death or disability, the five-year minimum requirement is waived.
The maximum gratuity amount an employee can receive is currently capped at ₹25 lakh under the updated rules.
How Gratuity is Calculated
The gratuity amount can be calculated using this formula:
Total Gratuity Amount = (Last Salary) x (15/26) x (Number of Years Worked)
In this formula:
- Last Salary: The most recent salary drawn by the employee, including basic pay and dearness allowance.
- 15/26: Represents 15 days out of the 26 working days counted in a month.
- Years Worked: The total duration an employee has worked in the company, with special rounding rules applied.
Example Calculation for a ₹35,000 Basic Salary and 7 Years of Service
Let’s break down the calculation using a ₹35,000 basic salary for an employee who has worked in the same company for 7 years:
Gratuity = ₹35,000 x (15/26) x 7 = ₹1,41,346
This means the employee would receive ₹1,41,346 as a gratuity amount upon leaving the company.
Understanding 15/26 in Gratuity Calculations
The 15/26 ratio is based on 15 days of salary per year of service, with 26 days representing the standard working days in a month, accounting for weekends. An essential part of the calculation is that service durations of six months or more are rounded up to the next full year.
For example:
- If an employee has worked 7 years and 7 months, they are considered to have completed 8 years.
- However, if the employee worked 7 years and 3 months, only 7 years would be counted.
Gratuity Categories Under the Act
The Gratuity Payment Act 1972 divides employees into two categories to determine eligibility and calculation methods:
- Category 1: Employees who are covered under the Payment of Gratuity Act, 1972.
- Category 2: Employees who are not covered under the Act but may still be eligible based on company policies.
The formula for calculating gratuity may differ slightly for those outside the Act’s coverage but typically follows similar principles for most employees.
This updated information on gratuity calculations, eligibility, and tax-free limits ensures that employees can plan better for the future, understanding their potential gratuity benefits based on years of service and last drawn salary.