7th Pay Commission calculator: When it comes to this money, central government employees really must pay more attention
7th Pay Commission calculator: Retirement planning for Central government employees has become smooth as the Centre has recently provided them a host of benefits to help them save massively in the shape of gratuity payment under the 7th Pay Commission. The Centre had earlier agreed to hike the gratuity ceiling from Rs 10 lakh to Rs 20 lakh. Here are other facts about gratuity that they should know, even how to calculate it so that they can banish all uncertainty and confusion from this big feature of the payments they will receive.
What is Gratuity under 7th Pay Commission?
Central government employees receive gratuity as a monetary benefit under 7th Pay Commission, however, it is not paid on a regular monthly format. For both government and private employees, provisions and regulations of gratuities are governed under the Payment of Gratuity Act, 1972. Those who avail gratuity benefit should fulfill criteria including eligibility for superannuation, retired from the job, have resigned after completing 5 years of service in a company, and death or disability or sickness during service period. Image source: Reuters
7th Pay Commission calculator: How gratuity is actually calculated:
Gratuity amount is calculated according to tenure of service being completed in a company multiplied by the last drawn basic salary under 7th Pay Commission, plus dearness allowances. As per ClearTax report, it can be calculated in the following way:
For example - You worked with XYZ company for a period of 15 years, and your last drawn basic salary along with dearness allowance was Rs 30000. Hence, the amount of gratuity as per the formula = 15*30000*15/26 = Rs 2,59,615. Image source: Reuters
What has changed now under 7th Pay Commission?
Now, when gratuities are made tax-free upto Rs 20 lakh. According ClearTax, if the last salary drawn is Rs.1 Lakh per month (basic + DA), you are entitled to receive a gratuity of Rs 11 Lakh. The employee has been in employment for the last 19 years and 7 months. Earlier, any gratuity amount above Rs 10 lakh was subject to income tax slabs. Notably, the 15/26 format is derived as 15 days salary based on the salary last drawn for every completed year of service.
7th Pay Commission
In its report, ClearTax has said, “The impact of the amendment is evident from the example. A hike in the ceiling limit of maximum exemption helps reduce the taxable gratuity amount. This amendment is going to benefit those earning higher salaries in the short run. However, if you have a long time left before your retirement, this amendment will benefit most employees.” Image source: Reuters