Will you get gratuity, and how much will it be

A pension is not the only parting gift you get from your employer. One of the sizable amounts you will get is Gratuity. You just have to sit on a computer and open an online retirement fund calculator. An online gratuity calculator (India) lets you answer these 4 questions to get your gratuity figure:

1. What is your last basic salary?
2. What is the Dearness Allowance (DA) that you got?
3. What is your total service tenure, expressed in years and months?
4. Is your company covered under the Gratuity Act, 1972?

Alright, you have the gratuity figure with you but do you know whether you are eligible to receive it or not? Here is all the information you require to understand gratuity:

Quick Facts about Gratuity

• Gratuity Act 1972 states that an employer with 10 or more employees must pay its employees gratuity.
• Gratuity must be paid out on the termination of services.
• If the employee dies, the legal heir gets the gratuity.
• Gratuity is taxable as ‘Income from Salary’ in the hands of the employee, and as ‘Income from other sources’ in the hands of the legal heir.

Who is eligible for gratuity?

• The employer must come under Gratuity Act 1972.
• If an employee has served a minimum stretch of 5 years with his employer, he is eligible for receiving gratuity. This is according to Income Tax Act Section 10(10).
• At least 240 workdays in a year count as full time service.
• The five year condition is waived off in case of death or disability.

Job termination method matters too

If you got fired from the job for indiscipline, ineptitude, negligence etc. then you are ineligible to receive gratuity. Only the following cases of job termination qualify for receiving gratuity:

• Resigning from the job for better prospects
• Voluntary retirement
• Retirement/ Superannuation
• Retrenchment

What are the tax exemptions on gratuity?

Government employees don’t have to pay any Income Tax on gratuity.

• If a private sector employer is covered under Gratuity Act, 1972, then tax is exempt for the employee’s gratuity up to a sum of Rs. 10 Lakh. Any amount in excess of that figure is taxable.
• If an employer doesn’t fall in the above two categories, then whatever gratuity the employee may have received in part over the years is exempt up till the total limit of Rs. 10 Lakh.

The smartest decision you should take regarding your gratuity is to invest it either in a pension plan, or if you are financially secure, then in a long-term asset.

So, make the most of the online gratuity calculator (India) and know what the company owes you. Have a wealthy future ahead!