The recent changes to gratuity rules by the Indian government are advantageous for those salaried employees.Initially given as a token of appreciation to employees for their services, gratuity is now more liberal in legal terms. According to the new rules, if you are receiving a monthly salary of ₹35,000, you could be entitled to a gratuity pay somewhere close to ₹1,41,346. Let me explain.
What Is Gratuity?
The Payment of Gratuity Act, 1972, is the law for the purpose of the payment of gratuity to specified employees who have worked to the satisfaction of their employers on completing unbroken service for a period of five years or more with the same employer. It is payable at the time of retirement, resignation, death, or disablement.
The New Formula To Calculate Gratuity
Under the new rules, the gratuity amount is calculated as
Gratuity = (15/26) × Last Drawn Salary × Number of Completed Years of Service
Where:
- 15/26 refers to 15 days of salary for each year of service, with 26 being the working days in a month.
- Last Drawn Salary includes basic pay and dearness allowance (DA).
Example Calculation
Assuming that an employee earns a basic salary plus DA of ₹35,000 and has served 8 years.
- Gratuity = (15/26) × 35,000 × 8
= 8,076.92 × 8
= 64,615 (approx.)
Through the recent enhancement, there are now a few allowances and other factors to be considered while performing the calculations: for example, time served as a contract employee, later absorbed as a permanent employee, in a more liberal rounding of service years, etc., which would inflate the gratuity amount.
The gratuity may be enhanced to ₹1,41,346 with suitable allowance and rounding adjustments, particularly when-all:
- The service is longer, more than 15 years, for example
- The employer goes the extra mile and pays gratuity in excess of the statutory minimum (some private companies do)
- The employees are coming into the ambit of an enlarged upper ceiling of tax-free gratuity, fixed now at ₹20 lakh
Importance Of The Matter
This is a huge relief for the employees, both in the Government and private sectors, with the sorry exception of the middle-level staff drawing a salary of just around ₹35,000. The increased payout would ensure enhanced cushioning for the smooth financial transition after retirement or change of job.
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