Increased limit of a ceiling that is maximum gratuity ceiling with respect to the benefit of employees has been given by the government, which has increased the ceiling limits from ₹20 lakh to, ₹25 lakh. The rationale is expected to be formative on the financial prudence of the retiree who also gets lump sum post-retirement benefit along with pensions at the time of retirement provided by the government.
What Is Gratuity?
Gratuity is the amount paid to an employee as a mark of appreciation from the employer towards the long service rendered by that employee. The term gratuity has been legally defined under the payment of Gratuity Act, 1972 and, for practical purposes, its payment is made usually to an employee for retirement, resignation, or incapacitated, or on termination of service in the event of the employee’s death.
This is determined on the basis of the last drawn salary of the employee with the number of years he/she worked in the establishment. Yet another way, it says, will give a chance of granting more gratuity benefits to the employees under this head.
Key Highlights Of Gratuity Ceiling Above Enhanced
-The new maximum ceiling of gratuity has gone up from ₹20 lakh to ₹25 lakh. The beneficiaries would also include private-sector employees besides central and state government employees under the Payment of Gratuity Act. Date of effect: Date for implementation notification coming soon. Effect on retirement benefits: Employees will henceforth receive a higher lump-sum amount providing greater financial security after retirement.
How Gratuity Is Calculated
Calculation of gratuity follows this formula:
Gratuity = (Last Drawn Salary × Years of Service × 15) / 26
Where:
- Last Drawn Salary is inclusive of major components of an employee’s salary like basic salary and dearness allowance.
- 15/26 means 15 days’ salary have been calculated for every completed year of service.
For instance, last drawn salary was ₹50,000 and a term of service was 30 years, then terminal gratuity under the newest limit would have been calculated as below:
(₹50,000 × 30 × 15)/26=₹ 8,65,385
Even if this were more than ₹25 lakh, the figure that an employee would receive would be the maximum ₹25 lakh.
Conclusion
So the new limit of ₹20 lakh to 25 lakh is a very good step toward better financial health for employees. Retirement will be better especially from long services as the monetary status for this case will be better. Employees should thus be on the lookout for the official government notifications to find out when the commencement of the new gratuity limit will be implemented.
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