1
Hi,
Gratuity is payable to an employee, if he has rendered continous service of atleast 5 years. As per Act it is computed as
(Last Month Salary + DA) x 15/26 X No. of service years.
Hope it's fine
From India, Calcutta
Gratuity is payable to an employee, if he has rendered continous service of atleast 5 years. As per Act it is computed as
(Last Month Salary + DA) x 15/26 X No. of service years.
Hope it's fine
From India, Calcutta
Gratuity is a lump sum payment to employee when he retires or leaves service. It is basically a retirement benefit to an employee so that he can live life comfortably after retirement. However, under Gratuity Act, gratuity is payable even to an employee who resigns after completing at least 5 years of service.
In DTC Retired Employees v. Delhi Transport Corporation 2001(4) SCALE 30 = 2001 AIR SCW 2005, it was observed that gratuity is essentially a retiring benefit which as per Statute has been made applicable on voluntary resignation as well. Gratuity is reward for good, efficient and faithful service rendered for a considerable period.
ACT PROVIDES FOR MINIMUM GRATUITY ONLY – The Gratuity Act provides only for minimum gratuity payable. If employee has right to receive higher gratuity under a contract or under an award, the employee is entitled to get higher gratuity. [Section 4(5)].
Employers liable under the scheme - The Act applies to every factory, mine, plantation, port, and railway company. It also applies to every shop and establishment where 10 or more persons are employed or were employed on any day in preceding 12 months. [Section1(3)]. Since the Act is also applicable to all shops and establishments, it will apply to motor transport undertakings, clubs, chambers of commerce and associations, local bodies, solicitor’s offices etc. , if they are employing 10 or more persons.
Employees eligible for gratuity – ’Employee’ means any person (other than apprentice) employed on wages in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled or unskilled, manual, supervisory, technical or clerical work, whether terms of such employment are express or implied, and whether such person is employed in a managerial or administrative capacity. However, it does not include any Central/State Government employee. [Section 2(e)]. Thus, the Act is applicable to all employees - workers as well as persons employed in administrative and managerial capacity.
Gratuity is payable to a person on (a) resignation (b) termination on account of death or disablement due to accident or disease (c) retirement (d) death. Normally, gratuity is payable only after an employee completes five years of continuous service. In case of death and disablement, the condition of minimum 5 years’ service is not applicable. [Section 4(1)].
The Act is applicable to all employees, irrespective of the salary.
Amount of gratuity payable - Gratuity is payable @ 15 days wages for every year of completed service. In the last year of service, if the employee has completed more than 6 months, it will be treated as full year for purpose of gratuity. - - In case of seasonal establishment, gratuity is payable @ 7 days wages for each season. [Section 4(2)].
Wages shall consist of basic plus D.A, as per last drawn salary. However, allowances like bonus, commission, HRA, overtime etc. are not to be considered for calculations. [Section 2(s)].
In case of employees paid on monthly wages basis, per day wages should be calculated by dividing monthly salary by 26 days to arrive at daily wages e.g. if last drawn salary of a person (basic plus DA) is Rs. 2,600 per month, his salary per day will be Rs. 100 (2,600 divided by 100). Thus, the employee is entitled to get Rs. 1,500 [15 days multiplied by Rs. 100 daily salary] for every year of completed service. If he has completed 30 years of service, he is entitled to get gratuity of Rs. 45,000 (Rs. 1,500 multiplied by 30). Maximum gratuity payable under the Act is Rs. 3.50 lakhs (the ceiling was Rs. 1,00,000 which was increased to 2.50 lakhs on 24.9.97 by an ordinance which was later increased to Rs 3.50 lakhs while converting the ordinance into Act].
MAXIMUM GRATUITY PAYABLE – Maximum gratuity payable is Rs 4 lakhs. [Section 4(3)]. [Of course, employer can pay more. Employee has also right to get more if obtainable under an award or contract with employer, as made clear in Section 4(5)].
INCOME-TAX EXEMPTION - Gratuity received upto Rs. 3.50 lakhs is exempt from Income Tax. Gratuity paid above that limit is taxable. [Section 10(10) of Income Tax Act]. - - However, employee can claim relief u/s 89 in respect of the excess amount.
No Compulsory insurance of gratuity liability – Section 4A provides that every employer must obtain insurance of his gratuity liability with LIC or any other insurer. However, Government companies need not obtain such insurance. If an employee is already member of gratuity fund established by an employer, he has option to continue that arrangement. If an employer employing more than 500 persons establishes an approved gratuity fund, he need not obtain insurance for gratuity liability. - - However, this Section has not yet been brought into force. Hence, presently, such compulsory insurance is not necessary.
Gratuity cannot be attached - Gratuity payable cannot be attached in execution of any decree or order of any civil, revenue or criminal court, as per Section 13 of the Act.
(Basic Salary + DA) x 15/26 X No. of service years.
From India, Gurgaon
In DTC Retired Employees v. Delhi Transport Corporation 2001(4) SCALE 30 = 2001 AIR SCW 2005, it was observed that gratuity is essentially a retiring benefit which as per Statute has been made applicable on voluntary resignation as well. Gratuity is reward for good, efficient and faithful service rendered for a considerable period.
ACT PROVIDES FOR MINIMUM GRATUITY ONLY – The Gratuity Act provides only for minimum gratuity payable. If employee has right to receive higher gratuity under a contract or under an award, the employee is entitled to get higher gratuity. [Section 4(5)].
Employers liable under the scheme - The Act applies to every factory, mine, plantation, port, and railway company. It also applies to every shop and establishment where 10 or more persons are employed or were employed on any day in preceding 12 months. [Section1(3)]. Since the Act is also applicable to all shops and establishments, it will apply to motor transport undertakings, clubs, chambers of commerce and associations, local bodies, solicitor’s offices etc. , if they are employing 10 or more persons.
Employees eligible for gratuity – ’Employee’ means any person (other than apprentice) employed on wages in any establishment, factory, mine, oilfield, plantation, port, railway company or shop, to do any skilled, semi-skilled or unskilled, manual, supervisory, technical or clerical work, whether terms of such employment are express or implied, and whether such person is employed in a managerial or administrative capacity. However, it does not include any Central/State Government employee. [Section 2(e)]. Thus, the Act is applicable to all employees - workers as well as persons employed in administrative and managerial capacity.
Gratuity is payable to a person on (a) resignation (b) termination on account of death or disablement due to accident or disease (c) retirement (d) death. Normally, gratuity is payable only after an employee completes five years of continuous service. In case of death and disablement, the condition of minimum 5 years’ service is not applicable. [Section 4(1)].
The Act is applicable to all employees, irrespective of the salary.
Amount of gratuity payable - Gratuity is payable @ 15 days wages for every year of completed service. In the last year of service, if the employee has completed more than 6 months, it will be treated as full year for purpose of gratuity. - - In case of seasonal establishment, gratuity is payable @ 7 days wages for each season. [Section 4(2)].
Wages shall consist of basic plus D.A, as per last drawn salary. However, allowances like bonus, commission, HRA, overtime etc. are not to be considered for calculations. [Section 2(s)].
In case of employees paid on monthly wages basis, per day wages should be calculated by dividing monthly salary by 26 days to arrive at daily wages e.g. if last drawn salary of a person (basic plus DA) is Rs. 2,600 per month, his salary per day will be Rs. 100 (2,600 divided by 100). Thus, the employee is entitled to get Rs. 1,500 [15 days multiplied by Rs. 100 daily salary] for every year of completed service. If he has completed 30 years of service, he is entitled to get gratuity of Rs. 45,000 (Rs. 1,500 multiplied by 30). Maximum gratuity payable under the Act is Rs. 3.50 lakhs (the ceiling was Rs. 1,00,000 which was increased to 2.50 lakhs on 24.9.97 by an ordinance which was later increased to Rs 3.50 lakhs while converting the ordinance into Act].
MAXIMUM GRATUITY PAYABLE – Maximum gratuity payable is Rs 4 lakhs. [Section 4(3)]. [Of course, employer can pay more. Employee has also right to get more if obtainable under an award or contract with employer, as made clear in Section 4(5)].
INCOME-TAX EXEMPTION - Gratuity received upto Rs. 3.50 lakhs is exempt from Income Tax. Gratuity paid above that limit is taxable. [Section 10(10) of Income Tax Act]. - - However, employee can claim relief u/s 89 in respect of the excess amount.
No Compulsory insurance of gratuity liability – Section 4A provides that every employer must obtain insurance of his gratuity liability with LIC or any other insurer. However, Government companies need not obtain such insurance. If an employee is already member of gratuity fund established by an employer, he has option to continue that arrangement. If an employer employing more than 500 persons establishes an approved gratuity fund, he need not obtain insurance for gratuity liability. - - However, this Section has not yet been brought into force. Hence, presently, such compulsory insurance is not necessary.
Gratuity cannot be attached - Gratuity payable cannot be attached in execution of any decree or order of any civil, revenue or criminal court, as per Section 13 of the Act.
(Basic Salary + DA) x 15/26 X No. of service years.
From India, Gurgaon
Hi Kapil, Your note says "MAXIMUM GRATUITY PAYABLE – Maximum gratuity payable is Rs 4 lakhs. . ." I think it is still Rs 3.50 lakhs as per Act.
From India, Calcutta
From India, Calcutta
Major Salary Components
Money that is received under Employer-Employee relationship is called Salary . If one is freelancer or are hired by an organization on contract basis, their income would not be treated as salary income.( In such case your income would be treated as income from business and profession)
The salary consists of following parts
Basic Salary: As the name suggests, this forms the very basis of salary. This is the core of salary, and many other components may be calculated based on this amount. It usually depends on one’s grade within the company’s salary structure.It is a fixed part of one’s compensation structure. And the complete amount becomes a part of your in-hand salary.
Allowances: Apart from basic salary, there are some allowances your CTC will contain. Examples include HRA, conveyance allowance, leave travel allowance. Some of these allowances are tax free up to a certain limit and some of them are dependant on your actual spending. It is the amount received by an individual paid by his/her employer in addition to basic salary to meet some service requirements such as Dearness Allowance(DA), House Rent Allowance (HRA), Leave Travel Assistance(LTA) , Lunch Allowance, Conveyance Allowance , Children’s Education Allowance, City compensatory Allowance etc. Allowance can be fully taxable, partly or non taxable.
Claims or Perquisite: A part of your salary may also be made up of your billed claims. These include components like mobile allowance, medical allowance etc. There is a maximum limit set to these components and are paid when you submit your bills. These are usually tax free. It is any benefit or amenity granted or provided free of cost or at concessional rate such as Rent free unfurnished house, Rent free furnished house, Motor car facility, Reimbursement of Gas, Electricity & Water, Club facility, Domestic Servant Facility, Interest Subsidy on Loan , Reimbursement of medical bills, Reimbursement of Hospital bills, Reimbursement of telephone bills, Benefits derived by employee stock option, and so on.
How are perquisites taxed? Since these are non-cash components, they cannot be taxed directly. So the income tax laws attach a certain value to each of these components and charges a tax on them. The calculation of this value varies from category to category. Nevertheless, the thumb rule across all categories is that only those benefits that you use for personal purpose will be considered as perquisites.
Deductions: A major part of your CTC comprises compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you do not get them as part of your in-hand salary. As such, although it increases your CTC, it does not increment your net salary. Compulsory deduction such as Provident Fund, Income tax,Professional Tax (where applicable) . Optional deduction such as recovery for advance or loan if taken, voluntary contribution to P.F etc
Provident Fund Contribution: Provident fund contribution has two sides – the employer’s contribution and employee’s contribution. This is usually 12 per cent of the basic salary. However, this contribution is not paid out . It is directly deposited in Provident Fund(PF) account and paid to employee when he retires or resigns.There is also employee’s contribution to PF. This amount is deducted from his monthly salary and deposited in his PF account. For details on provident fund you can read Provident Fund (PF) and Voluntary Provident Fund (VPF)
Performance linked pay: Linking a part of the salary to productivity and performance has become a trend today. You get the complete amount only on 100% achievement of target, but it forms a part of your CTC, fattening it up.
Different types of salary:
Gross Salary: is the amount of salary paid after adding all benefits and allowances and before deducting any tax.
Net Salary: is what is left of your salary after deductions have been made.
Take Home Salary: Is usually the Net Salary unless there are some personal deductions like loan or bond re-payments.
Cost to Company: Companies use the term “Cost to Company” to calculate the total cost to to employ . i.e. all the costs associated with an employment contract. Major part of CTC comprises of compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you not get them as a part of in-hand salary. As such, although it increases your CTC, it does not increment your net salary.
Taxes: Taxes are an unavoidable evil and they eat up a large chunk of your salary. Taxes are obviously never mentioned in your offer letter. So, ensure that you calculate your tax liabilities with the new income in accordance with tax policies to figure out the amount you will receive in your pay cheque.
The Salary structure varies company to company based on their policies. Some of the common Pay heads used are
1) Basic – 35% – 50% of Gross
2) HRA – 40% of Basic for Non metro & 50% of basic for Metro(Delhi, Mumbai, Chennai or Kolkata)
3) Con – Max Rs. 800/ P M which is Max of Rs. 9600 P A
4) Medical Reim – Max Rs. 1250 / PM which can be max of Rs 15000 PA
5) Spl Allow – Balance of Gross will be provided as Spl Allow
Statutory
1) PF
Emp Contribution – 12% on Basic (can be subjective to 780, which is 12% of the min basic salary i.e. 6500)
Emp’r Contribution - ( EPS – 8.33% (subject to a ceiling of Rs. 541)
PF – Rest of the amount out of 12% (can be subjective to 780, which is 12% of the min basic salary i.e. 6500)
PF administration charges – 1.1%
EDLI – 0.5% (subject to a ceiling salary of Rs. 6500)
EDLI administration charges 0.01% “
2) ESI – Applicable to employees whose Gross Salary is less than or equal to Rs.15000
Emp Contribution – 1.75% on Grorss
Emp’r Contribution – 4.75% on Gross
PT – It Varies State to state
Gratuity = Basic/26*15*(no. of years- It is payable to the employee who completes 5yrs of service in the organisation. It can be showed as a part of CTC.)
OT Calculation = basic+da/26/8*no.of hrs * 2
If Employees coming under high Salary Then you can again split up the amount in Spl Allow As
1) Food coupons
2) Car Hire
3) Petrol and Maint for Car
4) LTA
FBT is applicable Apart from LTA.
From India, Mumbai
Money that is received under Employer-Employee relationship is called Salary . If one is freelancer or are hired by an organization on contract basis, their income would not be treated as salary income.( In such case your income would be treated as income from business and profession)
The salary consists of following parts
Basic Salary: As the name suggests, this forms the very basis of salary. This is the core of salary, and many other components may be calculated based on this amount. It usually depends on one’s grade within the company’s salary structure.It is a fixed part of one’s compensation structure. And the complete amount becomes a part of your in-hand salary.
Allowances: Apart from basic salary, there are some allowances your CTC will contain. Examples include HRA, conveyance allowance, leave travel allowance. Some of these allowances are tax free up to a certain limit and some of them are dependant on your actual spending. It is the amount received by an individual paid by his/her employer in addition to basic salary to meet some service requirements such as Dearness Allowance(DA), House Rent Allowance (HRA), Leave Travel Assistance(LTA) , Lunch Allowance, Conveyance Allowance , Children’s Education Allowance, City compensatory Allowance etc. Allowance can be fully taxable, partly or non taxable.
Claims or Perquisite: A part of your salary may also be made up of your billed claims. These include components like mobile allowance, medical allowance etc. There is a maximum limit set to these components and are paid when you submit your bills. These are usually tax free. It is any benefit or amenity granted or provided free of cost or at concessional rate such as Rent free unfurnished house, Rent free furnished house, Motor car facility, Reimbursement of Gas, Electricity & Water, Club facility, Domestic Servant Facility, Interest Subsidy on Loan , Reimbursement of medical bills, Reimbursement of Hospital bills, Reimbursement of telephone bills, Benefits derived by employee stock option, and so on.
How are perquisites taxed? Since these are non-cash components, they cannot be taxed directly. So the income tax laws attach a certain value to each of these components and charges a tax on them. The calculation of this value varies from category to category. Nevertheless, the thumb rule across all categories is that only those benefits that you use for personal purpose will be considered as perquisites.
Deductions: A major part of your CTC comprises compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you do not get them as part of your in-hand salary. As such, although it increases your CTC, it does not increment your net salary. Compulsory deduction such as Provident Fund, Income tax,Professional Tax (where applicable) . Optional deduction such as recovery for advance or loan if taken, voluntary contribution to P.F etc
Provident Fund Contribution: Provident fund contribution has two sides – the employer’s contribution and employee’s contribution. This is usually 12 per cent of the basic salary. However, this contribution is not paid out . It is directly deposited in Provident Fund(PF) account and paid to employee when he retires or resigns.There is also employee’s contribution to PF. This amount is deducted from his monthly salary and deposited in his PF account. For details on provident fund you can read Provident Fund (PF) and Voluntary Provident Fund (VPF)
Performance linked pay: Linking a part of the salary to productivity and performance has become a trend today. You get the complete amount only on 100% achievement of target, but it forms a part of your CTC, fattening it up.
Different types of salary:
Gross Salary: is the amount of salary paid after adding all benefits and allowances and before deducting any tax.
Net Salary: is what is left of your salary after deductions have been made.
Take Home Salary: Is usually the Net Salary unless there are some personal deductions like loan or bond re-payments.
Cost to Company: Companies use the term “Cost to Company” to calculate the total cost to to employ . i.e. all the costs associated with an employment contract. Major part of CTC comprises of compulsory deductibles. These include deductions for provident fund, medical insurance etc. They form a part of your compensation structure but you not get them as a part of in-hand salary. As such, although it increases your CTC, it does not increment your net salary.
Taxes: Taxes are an unavoidable evil and they eat up a large chunk of your salary. Taxes are obviously never mentioned in your offer letter. So, ensure that you calculate your tax liabilities with the new income in accordance with tax policies to figure out the amount you will receive in your pay cheque.
The Salary structure varies company to company based on their policies. Some of the common Pay heads used are
1) Basic – 35% – 50% of Gross
2) HRA – 40% of Basic for Non metro & 50% of basic for Metro(Delhi, Mumbai, Chennai or Kolkata)
3) Con – Max Rs. 800/ P M which is Max of Rs. 9600 P A
4) Medical Reim – Max Rs. 1250 / PM which can be max of Rs 15000 PA
5) Spl Allow – Balance of Gross will be provided as Spl Allow
Statutory
1) PF
Emp Contribution – 12% on Basic (can be subjective to 780, which is 12% of the min basic salary i.e. 6500)
Emp’r Contribution - ( EPS – 8.33% (subject to a ceiling of Rs. 541)
PF – Rest of the amount out of 12% (can be subjective to 780, which is 12% of the min basic salary i.e. 6500)
PF administration charges – 1.1%
EDLI – 0.5% (subject to a ceiling salary of Rs. 6500)
EDLI administration charges 0.01% “
2) ESI – Applicable to employees whose Gross Salary is less than or equal to Rs.15000
Emp Contribution – 1.75% on Grorss
Emp’r Contribution – 4.75% on Gross
PT – It Varies State to state
Gratuity = Basic/26*15*(no. of years- It is payable to the employee who completes 5yrs of service in the organisation. It can be showed as a part of CTC.)
OT Calculation = basic+da/26/8*no.of hrs * 2
If Employees coming under high Salary Then you can again split up the amount in Spl Allow As
1) Food coupons
2) Car Hire
3) Petrol and Maint for Car
4) LTA
FBT is applicable Apart from LTA.
From India, Mumbai
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FORM-F-NOMINATI ON OF GRATUITY.pdf
Gratuity Form I.doc