Meaning
The word 'Gratuity' was derived from Latin word 'Gratuitous', Which means free gift. Once under British rule, employers used to offer such gift on retirement or resignation of an employee after giving a long and meritorious service. In later stage, the concept becomes the Gratuity act 1972.Now a day gratuity is benefit provided to employee for working more than 5 years and did not participate any activity, which caused employment injury or any offence involving moral turpitude in the course of employment.
Applicability
1. Gratuity act 1972 is applicable in all factories having:
- 10 or more worker strength during any day in the preceding year, if the manufacturing process is running with aid of power.
- 20 or more worker strength during any day in the preceding year, if the manufacturing process is running without aid of power.
2. Gratuity act 1972 is applicable in shops or other establishment having:
- 10 or more employee strength during any day in the preceding year.
3. Gratuity act 1972 is applicable in the following cases irrespective to the employee/worker strength.
- Mine
- Oilfield
- Railway company
- Major Port
- Plantation of Tobacco, Coffee or Sugar
Calculation
To calculate gratuity in India, always remember the following formula:
Part-1 Part-2 Part-3 |
- Part-1: Here Salary Includes Basic & DA.
- Part-2: This part represent 15 working days out of 26 in a month.
- Part-3: Here the number of years should be rounded up only if the decimal value is 6 months or more.
Although employer may give a higher amount of gratuity if he/she wish to do so, but the tax free gratuity will be, least of the followings:
- Calculated value as per the formula stated above
- Maximum threshold limit (ie: Rs. 20 Lakh Currently)
- Actual Gratuity Amount Received.
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