Gratuity Calculation: What will be your gratuity for Rs 50,000 last-drawn salary after 6 years 11 months of service?
Understand gratuity eligibility, calculation, and tax benefits. Learn how Rs 50,000 last drawn salary after 6 years 11 months of service results in a gratuity payout of Rs 2,01,923.
Gratuity is a financial reward given by employers to employees for long-term service and is governed by the Payment of Gratuity Act, 1972. It acts as a retirement cushion and helps in future financial planning. If you've served for over five years and your last drawn salary is Rs 50,000, you're likely eligible for a significant payout. In this article, we break down gratuity eligibility, calculation method, key rules, and tax implications to help you plan your finances smartly.
What Is Gratuity?
Gratuity is a financial benefit given by employers to employees as a token of appreciation for their long-term service. It offers financial security, especially during retirement or job transition.
Who Is Eligible for Gratuity?
An employee becomes eligible if they:
Work in an organisation with 10 or more employees.
Have completed at least 5 years of continuous service.
Are employed in sectors like factories, mines, offices, or railways.
When Is Gratuity Paid?
Gratuity is payable under the following conditions:
Resignation after completing 5 years.
Retirement or superannuation.
Termination by the employer.
Disablement due to accident or illness.
Death, in which case the amount goes to the nominee or family.
Minimum Service Requirement
To claim gratuity, an employee must serve a minimum of 5 continuous years.
Note: If an employee works 6 months or more in a year, it is rounded to the next full year.
Rounding Rule for Years of Service
Years of service are rounded as follows:
7 years 1 month = Counted as 7 years
8 years 6 months = Counted as 9 years
Organisations That Must Provide Gratuity
Any company with 10 or more employees at any time in the past 12 months is legally bound to offer gratuity. Once eligible under the Gratuity Act, an organisation cannot opt out.
Key Factors Affecting Gratuity Amount
Gratuity depends on two primary factors:
Last drawn basic salary
Total years of service (rounded up if applicable)
Gratuity Calculation Formula
The standard formula is:
Gratuity = (Last Drawn Salary × Years of Service × 15) / 26
15 represents 15 days of salary per year.
26 is the number of working days in a month.
Example: Rs 50,000 Salary & 6 Years 11 Months of Service
Service considered: 7 years (after rounding)
Calculation:
Gratuity = (50,000 × 7 × 15) / 26 = Rs 2,01,923
Tax Implications of Gratuity
- Government employees: Gratuity is fully tax-exempt.
- Private sector employees: Tax exemption is available up to Rs 20 lakh under Income Tax rules.