Gratuity is a financial benefit given to employees as a recognition of their long-term service. It is a mandatory benefit provided under the Gratuity Act to employees who have worked for at least 5 continuous years in an organization.

Let's break down how to calculate gratuity based on 5, 7, and 10 years of service and understand how this benefits you.

• Gratuity is a lump sum payment given to an employee when they leave an organization or retire, based on their years of service and last salary.
• The Gratuity Act applies to establishments with 10 or more employees, including factories, mines, oil fields, plantations, etc.
• Government employees have a higher gratuity ceiling of ₹25 lakh, while the limit for non-government employees is ₹10 lakh.

The formula for calculating gratuity is as follows:

Gratuity Amount=Last Salary×Years of Service×1526\text{Gratuity Amount} = \frac{\text{Last Salary} \times \text{Years of Service} \times 15}{26}Gratuity Amount=26Last Salary×Years of Service×15

Where:

• Last Salary includes basic salary, dearness allowance (DA), and commission.
• 26 working days are considered in a month for calculation.

Assume the last salary of an employee is ₹30,000.

Gratuity=₹30,000×5×(1526)=₹86,538.46\text{Gratuity} = ₹30,000 \times 5 \times \left( \frac{15}{26} \right) = ₹86,538.46Gratuity=₹30,000×5×(2615)=₹86,538.46

Gratuity=₹30,000×7×(1526)=₹1,21,153.84\text{Gratuity} = ₹30,000 \times 7 \times \left( \frac{15}{26} \right) = ₹1,21,153.84Gratuity=₹30,000×7×(2615)=₹1,21,153.84

Gratuity=₹30,000×10×(1526)=₹1,73,076.92\text{Gratuity} = ₹30,000 \times 10 \times \left( \frac{15}{26} \right) = ₹1,73,076.92Gratuity=₹30,000×10×(2615)=₹1,73,076.92

If the organization is not covered under the Gratuity Act, the formula is adjusted:

Gratuity=15×Last Salary×Years of Service30\text{Gratuity} = \frac{15 \times \text{Last Salary} \times \text{Years of Service}}{30}Gratuity=3015×Last Salary×Years of Service

• Future Security: Provides a financial cushion for employees after their service ends.
• Compliance with Government Rules: Gratuity is a statutory benefit, ensuring it is protected and recognized by the government.
• Tax Benefits: Gratuity received is tax-free up to ₹10 lakh for non-government employees, and higher for government employees.

• Non-covered Organizations: In organizations not covered by the Gratuity Act, the calculation method might differ. Typically, employees receive half a month’s salary for each year of service.
• Working Days: The calculation might also use a 30-day month in certain cases, affecting the total gratuity amount.

Gratuity serves as a significant financial benefit for employees, especially those working in the organized sector or in government positions. It not only acknowledges your hard work but also ensures financial security for your future.

Ensure that your UAN is activated and your Aadhaar is linked to avail of your gratuity benefits under the law, especially if you have served for 5 or more years with the same employer.

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