What is Gratuity Act: Everything about Gratuity Act Explained

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How to Calculate Gratuity Amount?

The calculation formula is different for two broad categories:

1. Employer Covered Under Gratuity Act

2. Employer Not Covered Under Gratuity Act

In the first case, employers use the following formula:

Total gratuity amount = n*b*15 / 26

Where n = number of years in providing services to a company.

b= last basic salary and dearness allowance.

Take a look at the following example:

What Are the Taxation Rules for Gratuity

Go through the following taxation rules for gratuity:

1. Government Employees – Employees working in government (central/state or local) enjoy tax exemption on gratuity.

2. Private Employees – Employees working under an employer who is covered under the Gratuity Act, the tax exemption is applicable for the least of the following:

1. ₹20,00,000

2. The Actual Gratuity Amount

3. Eligible Gratuity

Let's take a simple example for clearer understanding:

Total tenure of your service in a company	15
Last basic salary + dearness allowance	₹30,000
Total gratuity amount	15x ₹30,000x15/26 = ₹2,59,615

Total tenure of your service in a company	7
Last basic salary + dearness allowance	₹30,000
Total gratuity amount	15x ₹30,000x7/30 = ₹1,05,000

Total Gratuity Amount	₹12,00,000
Eligible Gratuity Amount (as per the example mentioned above)	₹2,59,615
Maximum Tax Exemption Limit	₹20,00,000
Exemption Amount	₹2,59,615 (least of the three)
Remaining Taxable Amount (based on your income tax slab)	₹9,40,385

What is Gratuity Act: Payment Rules and Calculation

How Does Gratuity Payment Work?

How to Calculate Gratuity Amount?

What are the Important Gratuity Rules

What Are the Gratuity Payment Rules?

Payment of Gratuity Act 1972 Rules in Case of Disputes

What Is Forfeiture of Gratuity?

What Are the Taxation Rules for Gratuity

Important Guidelines to Remember While You File a Complaint

Frequently Asked Questions

✓ Can you nominate a nominee to receive the gratuity fund in your absence?

✓ Can you receive a gratuity fund if you are a contract employee in a company?

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