Least of the following 3 amounts shall be exempt :
1/2 month salary for every completed year of service on the basis of average salary drawn during 10 months immediately preceding the month of retirement.
Maximum notified limit, ` 10,00,000.
Gratuity actually received by the employee and balance shall be taxable
Taxable gratuity = Actual gratuity received - Exempt
Important Notes :
Employees not covered under POGA, 1972.: Employees working in any shop or establish-ment in which less than 10 persons are employed or were employed on any day of the preceding 12 months.
Calculation of length of service/service period. : While calculating length of service, only completed years are to be counted. Thus, any fraction or part of the year is to be ignored. For example (i) If service period = 25 year 9 months, it is to be taken as 25 years. (ii) If service period 25 years 4 months, it is also to be taken as 25 years.
How to calculate ½ (Half) month’s salary ? : ½ month’s salary is to be calculated on the basis of average salary drawn during the 10 months immediately preceeding the month of retirement. For example, if an employee retires on November 15, 2013, average salary is to be calculated by taking total salary drawn during past 10 months (i.e., from January 1, 2013 to October 31, 2013).
Now : ½ month’s salary = Average salary x ½
Meaning of Salary. The word ‘salary’ here has the same meaning as is assigned to it for provident fund purposes.
Thus, Salary = Basic Salary + D.A. (Enters) + Commission payable at a fixed percentage of turnover achieved by employee
D.A. shall be part of basic salary if it enters into salary for calculating all retirement benefits. In case a part of D.A. enters only to calculate some of the retirement benefits then that part of D.A. will not be taken as part of basic salary for this purpose.
5. Whole life limit. Same as discussed in case of employees covered under Payment of Gratuity Act, 1972.
6. Relief U/S 89(1). Same as discussed in case of employees covered under Payment of Gratuity Act, 1972.