When you leave the service, your employer reward you for your service to the organisation. He does so by giving you a free lump sum of cash - called gratuity in financial parlance - on your exit. The amount that he gives is based on the number of years of service you have put into the organisation.
Gratuity Act Amendment India 2010 (Gratuity Calculation and Payment). This is good news for all employees specially government employees. The Gratuity limit has been raised from 3.50 lacs to 10 lacs*. This will give advantage to both private and public sector employees. According to this new amendment the 10 lacs* on gratuity is Tax-free.
When are you entitled?
Gratuity in earlier days was rather arbitrary and completely hostage to the whims of the employer. A wealthy, well-established employer would reward his dedicated employees and the not so rich would refuse such generosities. This led to a lot of discord and finally the government stepped in, passing the Payment of Gratuity Act, 1972, making it mandatory for all employers with more than 10 employees to give them gratuity.
Employees, as defined here, are the ones hired on company payrolls. Trainees are not eligible and gratuity is paid on the basis of the employee's basic plus dearness allowance if any.
How much can you get?
You become entitled to a gratuity on resignation or on retirement after five years# or more of service. As per the Act, the gratuity amount is 15 days' wages multiplied by the number of years put in by you. Here wage means your basic plus dearness allowance. Take the monthly salary drawn by you last (basic plus dearness allowance) on resignation or retirement and divide it by 26, assuming there are four Sundays in a month. This is your daily salary. Multiply this amount by 15 days and further with the number of years you have put into service.
Tax treatment
As per the formula under the Act, gratuity up to Rs 10,00,000* is exempt from taxes.
Your employer could choose voluntarily to pay you more gratuity; but any extra benefit that he pays, not coming under the formula, will be taxable.
Your employer could choose voluntarily to pay you more gratuity; but any extra benefit that he pays, not coming under the formula, will be taxable.
In case of death of the employee, the heir is entitled to the gratuity immediately and the entire amount is tax-exempt. However, if death occurs after the gratuity is due then any amount above Rs 10,00,000* is taxable.
For the Gratuity calculation the gratuity calculation formula is
1. Basic/26 x 15 days x number of years of service
OR
2. Basic + DA (Last Pay drawn) X 15 /26 X No. of Years
Since, Gratuity Benefit is a defined benefit plan and In Indian Context employers make provision for Gratuity Benefits in their Balance Sheet in compliance of AS-15 (Revised 2005). As per para 49 of AS-15 (Revised 2005) "Accounting for defined benefit plans is complex because
actuarial assumptions are required to measure the obligation and the
expense and there is a possibility of actuarial gains and losses.
Moreover, the obligations are measured on a discounted basis because they may be
settled many years after the employees render the related service. While
the Statement requires that it is the responsibility of the reporting
enterprise to measure the obligations under the defined benefit plans, it is recognized that for doing so the
enterprise would normally use the services of a qualified
actuary.
We provide Actuarial Services under Gratuity, Leave Encashment and Other Employee benefit plans in Compliance of Accounting Standard 15 (Revised 2005) issued by the Institute of Chartered Accountants of India and is mandatory in nature (refer to the text of the standard for details).
We have expertise, experience and in-depth knowledge in this field for a span of 15 years . We have a large clientele spread in almost all sectors of the economy in Public and Private Sectors including Multinational Companies, Limited Companies, Schools, Hospitals, Banks, Electricity/Power Companies etc. etc.
Our Man Power is very talented & competent in actuarial expertise and have earned high appreciation from our customers. We believe in providing quality services.
We have expertise, experience and in-depth knowledge in this field for a span of 15 years . We have a large clientele spread in almost all sectors of the economy in Public and Private Sectors including Multinational Companies, Limited Companies, Schools, Hospitals, Banks, Electricity/Power Companies etc. etc.
Our Man Power is very talented & competent in actuarial expertise and have earned high appreciation from our customers. We believe in providing quality services.
In case you require our services, you may visit our blog at www.consultingactuarymlsodhi.blogspot.in
* You may download the amendment for Gratuity Ceiling Enhancement from following weblink :-
http://labour.nic.in/upload/uploadfiles/files/Divisions/social_security/SealingEnhancement.pdf# You may downloadMadras High Court Judgement about the 4 Year & 240 days eligibility from following weblink :- http://www.citehr.com/257523-madras-high-court-judgement-gratuity-pdf-download.html
