Is Gratuity Taxable?

The Income-tax Act, 1961 exempts Gratuity from tax up to a certain limit. The tax applicability depends on the nature of the employee’s job who earns the gratuity. There are three cases:

• The gratuity provided to the government employees (central, state or local) is exempt from tax
• Other eligible employees whose employers are covered under The Payment of Gratuity Act,1972, their last drawn salary of only 15 days is tax exempt
• For the rest whose employers are not covered under The Payment of Gratuity Act,1972, the least of the their gratuity amounts will be exempt from tax:
• INR 20 lakhs
• The actual gratuity amount received
• Salary of half month for every year of employment that the employee has completed with the company

How To Check Gratuity Amount?

An employer has different ways to show gratitude to the employees for their extraordinary service and hard work during the period of employment. One such benefit offered to the workforce is by giving away the gratuity amount.

Gratuity can only be withdrawn after the completion of minimum five years in the same organization, at the time of leaving or retirement from the job. In some places, people used to use graduity amount or graduity calculation instead of graduity amount or graduity calculation

Under The Payment of Gratuity Act, 1972, gratuity is calculated as 4.81% of the Basic Pay.

The simplest formula to calculate Gratuity earned by an employee using CTC amount is as follows:

Now you can instantly check your gratuity amount using HROne’s

How To Withdraw Gratuity?

4.81% of the employees’ Basic Pay is deposited by the employer into the Gratuity account every year. This amount matures when the employee completes 5 years of service in the same organization. In order to be able to withdraw the Gratuity amount, the eligible employee must either leave the organization after the completion of 5 years or he/she can make the withdrawal at the time of retirement. In any other case, no company would allow the withdrawal of gratuity.

What Is 15 26 In Gratuity Calculation?

In the formula to calculate gratuity amount, i.e.,

Gratuity = (15/26)*A*B 

• where A is the total no. of years served in the company
• and B is last drawn salary
• Here, 15 being wages for 15 days
• and 26 being the number of working days in a month.

How Do Employers Make Gratuity Payments?

Employers either pay the gratuity amount to their employees from their personal accounts or a general gratuity insurance plan with a service provider. They then pay annual contributions to the service providers who, in turn, pay the gratuity to the eligible employees. 4.81% of the Basic Pay of employees’ salaries is contributed towards the gratuity funds every month by the employer. Policies, rules, and regulations are specially taken care of while making this payment.

Learn about The Payment of Gratuity Act, Forms, Eligibility