Key amendments in the Payment Of Gratuity Act- gratuity calculation in 2019 - India4world

Key amendments in the Payment Of Gratuity Act- gratuity calculation in 2019

Key amendments in the Payment Of Gratuity Act- gratuity calculation in 2019

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The Indian Government introduced the concept of gratuity on 16th September, 1972 as a defined benefit plan for salaried employees. The initiative was put in action to encourage citizens to save a considerable gratuity amount for their retirement. The terms of gratuity, such as the gratuity calculation rules, are governed by the Payment of Gratuity Act, 1972. The Act applies to salaried employees falling under the purview of Section 2(e) and employers having 10 or more employees.

If you are eligible for gratuity, your employer will deduct a part of your gross salary and deposit it in your gratuity account every month. Unlike EPF, you cannot transfer your gratuity from one employer to the other, but earn separate gratuities with each employer you work with, provided they are covered under the Act. That said, you can only withdraw your lump sum gratuity amount with one employer after completing 5 years with them. Further, you are eligible to receive the payment only upon retirement, superannuation, resignation or lay off.

So far, gratuity was governed by the Payment of Gratuity Act 1972; however, the government has amended certain rules in 2018. Here’s more about the Payment Of Gratuity (Amendment) Act 2018 and how to calculate your gratuity amount today.

Payment Of Gratuity (Amendment) Act 2018

According to the Payment Of Gratuity Act, 2018, the following changes were made:

  • The ceiling limit of the maximum tax-free gratuity amount for both central government and formal sector employees has been set to Rs.20 lakh. Previously, the tax-free gratuity limit for the formal sector employees was set at Rs.10 lakh.
  • No mention on the ceiling limit is made in the Act. This empowers the government to revise the limit from time to time based on the increase in inflation, wages, and alterations in future Pay Commissions, without making any changes to the primary legislation.
  • The amendment has also extended maternity leave to benefit employees. Now, the maternity leave period for women in continuous service has been increased to 26 weeks from 12 weeks. This change reflects the recent amendments made to the Maternity Benefit Act.

 Gratuity calculation rules

Your employer determines your gratuity amount based on the tenor of your service and last drawn salary. Take a look at the formula used to calculate your gratuity amount:

Gratuity amount = Last drawn salary X Total number of years of service you have rendered X 15/26

 Note that though there is a maximum limit on tax-free gratuity, there is no restriction on the actual amount of gratuity that an employer can pay you. That said, an employer may offer a higher gratuity amount than what is calculated. However, when calculating the gratuity amount, your employer has to abide by the following gratuity calculation rules.

  • Last drawn salary equals basic salary plus dearness allowance.
  • Employer has to consider the time period of six months or more as a year. For instance, if you have rendered service for 5 years 6 months, your employer will consider it as 5 years and if you have completed 6 years 7 months, it will be considered as 7 years of continuous service.

On receiving your gratuity, make sure to invest it further in order to accumulate a robust retirement fund. Consider low-risk options like the best Senior Citizen Saving Scheme in India or a fixed deposit. Also known as SCSS, the Senior Citizen Saving Scheme is designed for senior citizens or individuals aged 55 years and above in some cases. You can open an SCSS account in banks and post offices and invest a maximum of Rs.15 lakh individually or Rs.30 lakh together with your spouse. This savings scheme currently yields interest of 8.7%. SCSS has a tenor of 5 years, which you can extend by 3 more years.

The other option that offers high returns and no risk are FDs. These are also one of the most favoured options that keep your investments safe and also yield guaranteed and steady returns. Invest in a Fixed Deposit offered by reputed issuers like Bajaj Finance to enjoy a suite of beneficial features like auto-renewal, multiple deposits through 1 cheque, loan against FD of up to 4 lakh or investment via debit cards to make the most of your investment. Here, you can earn interest of up to 8.95% as a senior citizen and 8.60% as regular investor when you start an account for at least 36 months with interest payable at maturity. Awarded the highest credit ratings of FAAA by CRISIL and MAAA by ICRA, these FDs assure timely gains.

Further, you can ladder your FDs for varying tenors ranging from 12 to 60 months, and access liquidity when in need. Besides, you can also choose from various interest payout options like monthly, quarterly, semi-annually and annually, based on your requirements. For best results, diversify your nest egg by investing in both the options based on your objectives. Doing this will give you the best of both worlds and make the most of your gratuity too.

 

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