About calculation of Compensation, PF and Gratuity

Re: About calculation of Compensation, PF and Gratuity

What is gratuity? Gratuity is a lump sum that your employer pays you when you retire or resign from the organization. You do not need to contribute any portion of your salary towards this amount. Gratuity is paid out at your superannuation (if you retire at the age of 5 , when you retire (at any other age) or resignation, and in the event of your death or being rendered disable because of an accident or illness. You need to have at least five full years of service with an employer to qualify for gratuity. This rule is relaxed in the last instance. In the event of your death, the gratuity will be paid to your nominee. How is gratuity calculated? The gratuity will be calculated according to the formula: Gratuity = Last drawn salary x 15x No. of years of service 26 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. And the maximum gratuity payable is Rs. 3.5 lakh. Use the Gratuity Calculator to find out approximately what you will get as Gratuity when you leave your job. When will you get your gratuity? Your employer must pay you your gratuity within 30 days. If he does not do so within this period, he will have to pay you simple interest on the amount. This interest will be paid from the date on which your gratuity was to be paid to you up till the date on which it is paid, at a rate that the government sets for the repayment of long-term deposits. However, if the delay in payment of gratuity was not caused by the employee, or if the employer has got permission to make a delayed payment, this interest will not be paid. Top Is gratuity taxable? Gratuity is exempt as under: Death-cum-retirement gratuity received by employees of central or state governments and local authorities is exempt without limit. Gratuity received under the Payment of Gratuity Act, 1971 is exempt to the extent that it does not exceed 15 days' salary for every completed year of service calculated on the last drawn salary subject to a maximum of Rs 3.5 lakh. Any other gratuity is exempt to the extent that it does not exceed one half-month salarys for each year of completed service calculated on the basis of average salary for 10 immediately preceding months subject to a maximum of Rs 3.5 lakh. The ceiling of Rs 3.5 lakh applies to the aggregate of gratuity received from one or more employers in the same or different years. 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.

For calculation of the Provident Fund you can visit the website given below. You will have a proper understanding of what Provident fund actually means http://www.indialawinfo.com/bareacts/esi.html hope this information will be helpful in understanding the query.