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How Gratuity is the Best Benefits Scheme for Employees?

Wherever you go, there is this talk about how working professionals can avail benefits from the various employment funds and regimes. It really is the talk of the town! Now, are you aware of these schemes, and what benefits do they bring along for the workforce?

Let me give you a few examples: Employees’ Provident Fund, Employees’ State Insurance, and the very famous Gratuity scheme. In this blog, we will talk about how Gratuity stands out from the numerous other government plans for employees.

To begin with, try to understand what Gratuity is? It is nothing but a little way to acknowledge the employees for their extraordinary service during their employment through trophies and awards monetary rewards.

To gain an in-depth understanding of the same, we will discuss the factors including the Gratuity calculation formula, eligibility, applicability, and other tax-ability.

So, let’s walk through the multiple advantages of getting registered under this scheme and know how it is the best benefit programmed ever:

1. Straight forward Eligibility

Any working professional is eligible to claim the gratuity amount at the time of termination if he/ she has completed working for a minimum of 5 years with the same organization. Now, the people registered under the gratuity scheme can also nominate another person or name their legal heir in order to claim the reward money in case of death, disability, or prolonged illness of the recipient, when the employment is automatically discontinued.

2. Common Applicability

According to the Payment of Gratuity Act, 1972, companies that have an employee base of 10 working members or more are liable to get registered under the Gratuity benefit scheme. These establishments may include railway companies, shops, factories, mines, oilfields, ports, plantations among others.

3. Simple Calculation

There is always an easy way out to solve a problem. The same is the case with calculating your salary or the earnings and deductions separately. Although we have an option of a Gratuity calculator to do the math, what is the point if you don’t know the basics, right? So, the Gratuity calculation formula to follow is:

Gratuity = Last Drawn Salary (Basic Pay + D.A.) * 15/26 * Total Years of Service

4. The Tax Exemption Factor

The maximum limit that the Gratuity amount can reach is INR 20,00,000 and any employee receiving up to this range can enjoy tax-free gratuity if they choose to withdraw it after the termination of employment due to what-so-ever reasons as per the Income Tax Act. In case the gratuity amount is withdrawn during the term of employment, it is counted as ‘salary’ and is thus taxable. Besides, the rule varies on the basis of various factors like the type of organization/ employment and other factors.

5. Miscellaneous Advantages

Apart from the aforementioned obvious benefits, the Gratuity scheme has a number of other advantages such as:

  • The assurance of a company to pay Gratuity doesn’t depend on the profit and loss of the company, it becomes compulsory once committed
  • One can transfer the gratuity fund and carry it forward to the next organization, but only if one has completed 5 years working with the same organization.
Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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