Gratuity final

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Gratuity Gratuity Created By Laxmi Yadav Sneha Chavan

Transcript of Gratuity final

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GratuityGratuity

Created By

Laxmi YadavSneha Chavan

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DefinitionDefinition

Gratuity is reward money for continuous service for a specified number of years of service. Gratuity is paid to an employee, in addition to his salary, bonus, commission, etc., when he leaves the service of his employer....Gratuity is a lump sum payment made, based on the total service of an employee either on retirement or death. It is calculated as so many months pay with reference to his service.

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EligibilityEligibility

It is governed under the Payment of Gratuity Act 1972.

As per Sec 10 (10) of Income Tax Act, gratuity is paid when an employee completes 5 or more years of full time service with the employer.

ORGratuity is payable to an employee (nominee in case of death) who has rendered continuous service of 5 years or more at the time of his termination of employment, superannuation, retirement or resignation. Completion of continuous service of 5 years is not necessary where the termination of employment is due to death or disablement due to accident or disease.

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ApplicabilityApplicability

Every factory, mine, oil plantation, port and railway company

Every shop or establishment – if it employs 10 or more persons in the preceding 1 year.

To any other establishment – employing 10 or more persons.

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The Act does not apply to :

Apprentices & persons who hold civil post under the central govt. or state govt.

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How does it work How does it work ??

An employer may offer gratuity out of his own funds or may approach a life insurer in order to purchase a group gratuity plan.

In case the employer chooses a life insurer, he has to pay annual contributions as decided by the insurer. The employee is also free to make contributions to his gratuity fund. The gratuity will be paid by the insurer based upon the terms of the group gratuity scheme.

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ForfeitureForfeiture

Gratuity may be forfeited wholly or partially in case an employee has been terminated for:

Any act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer; OrAct of riotous or disorderly conduct or any other act of violence on part of employee; Or Any act which constitutes an off ence involving moral turpitude, in the course of his employment.

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Tax obligations for GratuityTax obligations for Gratuity

The gratuity received by the employee is taxable under the head ‘Income from salary’.

In case gratuity is received by the nominee/legal heir of the employee, the same is taxable in their hands under the head ‘Income from other sources’. This tax treatment varies for different categories of individual assessees

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Continued………..Continued………..

For the purpose of calculation of exempt gratuity, employees may be divided into 3 categories –

(a) Government employees and (b) Non-government employees covered under the Payment of Gratuity Act, 1972(c) Non-government employees not covered under the Payment of Gratuity Act, 1972

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Continued………Continued………

In case of government employees – they are fully exempt from receipt of gratuity.

In case of non-government employees covered under the Payment of Gratuity Act, 1972 – Maximum exemption from tax is least of the 3 below:(i) Actual gratuity received;(ii) Rs 10,00,000;(iii) 15 days’ salary for each completed year of service or part thereof

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Continued………Continued………

Note: Here, salary = basic + DA + commission (if it’s a fixed % of sales turnover). Completed year of service or part thereof’ means: full time service of > 6 months is considered as 1 completed year of service; < 6 months is ignored. Here, number of days in a month is considered as 26. Therefore, 15 days’ salary is arrived as = salary * 15/26

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Continued……..Continued……..

In case of non-government employees not covered under the Payment of Gratuity Act, 1972 – Maximum exemption from tax is least of the 3 below:(i) Actual gratuity received;(ii) Rs 10,00,000;(iii) Half-month’s average salary for each completed year of service (no part thereof)

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Note:

Here, salary = basic + DA + commission (if it’s a fixed % of sales turnover). Completed year of service (no part thereof) means: full time service of > 1 year is considered as 1 completed year of service. < 1 year is ignored. Average salary =10 months’ salary (immediately preceding the month of leaving the job)/10

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Points to remember……..Points to remember…….. Generally, only government employers give DA to their

employees. The salary of the employee may differ over a period of time

on account of change in basic, DA and/or other factors. In case gratuity is received from more than one employer

during the previous year, maximum exemption allowed is up to Rs 10,00,000.

Where employee has already claimed gratuity exemption in any previous year (s), the maximum exemption amount allowed for the current previous year i.e. Rs 10,00,000 will be reduced by the amount of deduction already claimed in the previous years.

In case of an employee who is employed in a seasonal establishment ( not employed throughout the year), the gratuity exemption shall be for seven days wages for each season.

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Gratuity CalculationGratuity Calculation

Gratuity : 15/26* ( Present Basic salary+DA)* (Nor. of years of service )

Here DA is applicable for govt. employees.

26 = taken as total working days in a month.

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Gratuity Deduction…Gratuity Deduction…

It is deducted at a rate of 4.81% from the basic salary of the employee.

Explanation : - Since ..receivable Gratuity = 15/26*( Nor. of Years of Service) ( Basic Salary)

Rate of Gratuity per month = 15/26*1/12 %= 4.81%

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THANKS