How Gratuity is Calculated
Calculating the amount of gratuity payable It mostly depends on the Payment of Gratuity Act of 1972. The Act does not apply to every employee.
- Employees who are not covered by the Act:
- If an employee is fired for any conduct, deliberate omission, or negligence that causes damage or loss to, or destruction of, the employer’s property, the employer is entitled to forfeit the amount of gratuity due to the employee, but only to the extent of the damage.
- If the termination is due to the employee’s disruptive behavior, the employer has the option of forfeiting all or part of the gratuity.
- If the employee was fired for any act involving moral turpitude, as long as the act was committed while he was employed.
- The taxability of any income is a serious concern. Is the gratuity tax deductible? It is dependent on the employee’s classification.
- Gratuity is exempt up to a maximum of Rs.20,00,000 for employees covered by the Act.
- Actual Gratuity received is(15 * last drawn salary * tenure of working) / 26
- Gratuity is exempt up to a maximum of Rs.10,000 for employees who are not covered by the Act. Actual Gratuity received is (15 * Average Salary * Period of Employment)/ 30
- For central/state government, defense, and local government authorities any amount of gratuity received is tax-free.