What is gratuity? How to calculate gratuity?
The Central Government amended the Payment of Gratuity Act of 1972 under the 7th Central Pay Commission roll out in 2017. Under the amendment, the ceiling on tax free gratuity was doubled to Rs20 lakhs from Rs10 lakhs earlier. Most people are not aware of the element of gratuity in their salary irrespective of being a government employee or working in private sector. Under the Payment of Gratuity Act of 1972, you are eligible to receive gratuity if you have rendered continuous services for a minimum of five years. This Act is applicable to employees of factories, railways, oilfields, ports, mines, plantations and any establishment that has 10 or more employees. It is not compulsory for establishments or organisations to pay gratuity if they do not fall under the Gratuity Act. If such an employer, still chooses to pay gratuity, the amount paid is tax free. However, the calculation is slightly different in such cases. We shall explore the calculation in detail, later in the articl