How to calculate gratuity on retirement?

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How to calculate gratuity on retirement?

I have recently retired from my job and have received a gratuity of Rs. 16,30,000. I have worked for a total of 35 years and need to know if my gratuity would be taxable and if yes then up to what extent.

Profile photo of kalpana Asked By: kalpana 1 replies 1 helpful answers Last Updated: 8 months, 1 week ago
  • Profile photo of kalpanakalpana
    Participant

    I have recently retired from my job and have received a gratuity of Rs. 16,30,000. I have worked for a total of 35 years and need to know if my gratuity would be taxable and if yes then up to what extent.

  • Profile photo of Chetan ChandakChetan Chandak
    Moderator

    In respect of Employees covered Under the Payment of Gratuity Act, 1972:

    Gratuity shall be calculated as per the below formula:

    Gratuity = Last drawn salary x 15/26 x No. of years of service

    Your last drawn salary will comprise your basic + DA. For computation of gratuity, your service period will be rounded off to the nearest full year.

    In respect of Employees not  covered Under the Payment of Gratuity Act, 1972: –

    Gratuity shall be calculated as per the below formula
    <div class=”code-block code-block-2″>Gratuity = Last drawn salary x ½ x No. of years of service</div>
    Your last drawn salary will comprise your basic + DA+ commission on sales on turnover basis. For computation of gratuity, your service period will not be rounded off to the nearest full year. While calculating completed years, any fraction of the year will be ignored. For instance, if the employee has a total service of 20 years, 10 months and 25 days, only 20 years will be factored into the calculation.

    Tax treatment of gratuity :- For the purpose of exemption of gratuity under sec.10 (10) the employees are divided under three categories:

    1. Gratuity received by Central and State Govt. employees, Defense employees and employees in Local authority shall be fully exempt.
    2. Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt subject to following limits:-
      • For every completed year of service or part thereof, gratuity shall be paid at the rate of fifteen days wages based on the rate of wages last drawn by the concerned employee.
      • The amount of gratuity as calculated above shall not exceed Rs. 10,00,000/- (Proposed to be revised to Rs. 20 lakh)
    3. In case of any other employee, gratuity received shall be exempt, subject to the following exemptions
      • Exemption shall be limited to half month salary (based on last 10 months average) for each completed year of service or Rs. 10 Lakhs (Proposed to be revised to Rs. 20 lakh) whichever is less.
      • Where the gratuity was received in any one or more earlier previous years also and any exemption was allowed for the same, then the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the overall limit being Rs. 10 Lakhs (Proposed to be revised to Rs. 20 lakh).

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