Tax On Gratuity: You are entitled to gratuity after working in any organization for a fixed period of time. This can be seen as a monetary honor given to you by the company.
That’s why it is also called token of appreciation. If you are a government employee, then you do not have to pay any tax on the amount received in gratuity. However, if you are a private employee then there is a tax rule on your gratuity.
Earlier, if a person received gratuity more than Rs 10 lakh, then he had to pay tax on the excess amount. However, now it has been increased to Rs 20 lakh. This means that if you get Rs 20 lakh as gratuity, no tax will be charged, but if you get Rs 21 lakh, you will have to pay tax on Rs 1 lakh.
How will the tax be calculated?
If someone has received a gratuity of Rs 21 lakh, then the additional Rs 1 lakh will be added to the annual income of that person. After this, according to the tax slab in which his new salary will come, tax will be collected from him.
How is gratuity calculated?
There is a fixed formula for calculating gratuity. (Last Salary) x (15/26) x (number of years worked in the company) = total gratuity amount. Suppose you worked in a company for 20 years and your last salary was Rs 50,000 per month. This gives you 2 numbers in the formula.
Now 15 and 26 are left, what is this? When gratuity is calculated, only 26 days are counted in a month because 4 days leave is removed. In this formula, 15 means that only 15 days of gratuity is available in a year. The calculation will be something like this – (50,000) x (15/26) x (20) = Rs 576,923. That is, after 20 years of service, you are entitled to a gratuity of about Rs 6 lakh.
Where is gratuity not available?
If the number of employees in a company is less than 10, then there is no provision for gratuity. However, if a company previously had more than 10 employees and recently this number has come down due to downsizing, even then the existing employees will be entitled to gratuity.
