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Gratuity and Gratuity calculation for private company

Gratuity calculation for private company
Gratuity calculation for private company


During working in a company, one part of the salary of the employee is deducted as the gratuity. Gratuity is available to employees working in government and private sector or in the organized sector. The labor ministry has increased the amount of tax-free gratuity from Rs 10 lakh to Rs 20 lakh. We will tell you about Gratuity calculation for private company employees and can be done if the company refuses to pay gratuity.

Gratuity related gratuity payment (Amendment) Bill 2018 got Parliament approval on March 21. There is a provision for an increase in the maximum limit of the gratuity in the bill of such employees who are working in the private sector and government under public sector or autonomous organizations. After passing this bill, the organized sector employees will not have to pay tax on gratuity up to Rs 20 lakhs.

What is Gratuity?

Gratuity is the part of the salary, which is given after a certain period in exchange for the services of the employees. According to Section 10 (10) of the Income Tax Act, every employee completing the minimum five-year service term in any corporation or company is entitled to the gratuity. According to the Gratuity Act, 1972, the employee is given 15 days of salary as the gratuity in each year of his service.

In this act, the employee is the person who holds on the payrolls, trainees do not receive the gratuity. The tax has not been given on the amount up to Rs 20 lakh under gratuity. Also, this law applies in such establishments, where the number of employees is at least 10.

What is the Eligibility to get Gratuity?

If a person completes 5 years of employment in a company, then he gets entitled to gratuity.

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Gratuity Calculation for Private Company

In the calculation of gratuity, the sum of basic salary and dearness allowance is included.

Suppose someone’s last salary (salary written on last salary slip) is Rs. 15000 Basic Salary DA = 5000 And if he leaves his job after 10 years in a company, then his gratuity will be:

(Basic Salary + DA) x 15 days x 10 years / 26 (here 26 months are considered in 1 month)

(15000 + 5000) x 15×10 / 26

Gratuity = Rs. 115,384 

By applying the above formula Gratuity calculation for private company can be done.

How much tax is taxed on gratuity?

When the gratuity is given during the period of the job (till the time of retirement), their gratuity is taxed as it comes under their wages. but the gratuity is given as their retirement, death or pension, then tax is not applied.

According to the new rules of labor ministry, employees of the organized sector will be eligible for tax-free gratuity up to Rs 20 lakh from January 1, 2016, before the limit was 10 lakh rupees. Above we have discussed Gratuity calculation for private company , you can go through that.

When you get the Gratuity?

  1. On retirement
  2. Due to death or disability due to accident or illness
  3. At the time of voluntary retirement service
  4. When trimming of employees
  5. On resignation
  6. If being fired from the job

Which form to fill for the gratuity?

While joining the company, the employee has to fill the form “F” and nominate any member of his house as a nominee. It is important to mention here that even if the company is operating in a deficit, it will have to pay the gratuity amount.

So if you are thinking of changing your company before 5 years, then decide with a bit of thinking, because if you have left the job before 5 years in a company, then you can not claim gratuity.

How to withdraw gratuity

Application for withdrawal of gratuity can be done by a person himself, or by sending an application for the withdrawal of gratuity through any of his authorized or acquaintances, to his old company.

With the application, please give the last salary slip, copy of offer letter, date of resignation and amount of gratuity, etc. After applying, give a month’s time to the company.

What to do if a company refuses to give gratuity (Legal Action if Gratuity is not paid)

If the amount of gratuity is not given to the former employee within one month of retirement or leaving the job by the employer or company (employer), then within the area where the company’s office is situated,  there will be a gratuity payment authority or central labor.

The complainant should file a complaint by sending all necessary documents. Apart from this, the victim sent a notice to the former office to get justice and filed a lawsuit in the Labor Courts.

On the day the employee applies for withdrawal of gratuity, payment should be made within 30 days of that date. If the company does not do this then the company will have to pay interest on the gratuity at the rate of simple interest. If the company does not do this, it will be held guilty of a violation of the Payment of Gratuity Act, 1972 (Payment of Gratuity Act, 1972) in which it can be punished from 6 months to 2 years.

Through this article, I have tried to tell how an employee can do Gratuity calculation for private company and employees, how to withdrawal gratuity, and if his employer or office does not give him gratuity then what kind of legal action should be taken? Hope this effort will prove to be helpful for you.

If you really like this article regarding Gratuity and Gratuity calculation for private company then do share with your family and friend so that they can make a use of this.



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