Gratuity Calculation: What Is The New Gratuity Rules?

New Gratuity Rules in India

In this article, we will learn all that we need to know about gratuity rules in India and the new gratuity policy.

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Employers express gratitude for the performance provided by giving their employees a lump sum amount known as a gratuity. The payment of the new gratuity rules passed in 1972, imposes certain regulations. The act was passed by Parliament on August 21 and went into effect on September 16 of the same year. This act applies to all departments of the central, state, and local governments as well as the defense and local governing bodies. Private organizations can come under its purview subject to the fulfillment of certain conditions. It is a financial incentive given to an employee in recognition of his service and loyalty to the business.

What Is The New Gratuity Rules?

The following new gratuity rules are listed regarding the use of gratuities:

Gratuity Must Be Paid if an Organisation Employs 10 or More Individuals

Companies that have 10 or more employees on a single day over the previous 12 months are required to pay gratuity. According to the payment of the new gratuity rules, if a company’s employee count falls to less than 10, it must still pay the gratuity.

Calculation of Gratuity Is Covered Under This Act

As we know, companies with 10 employees on a day in the foregoing 12 months are covered under this act.

Gratuity = (15× last salary drawn × number of service years completed)/26

No other part of the last drawn salary will be included; it consists only of the basic salary and the dearness allowance (DA).

A completed year of service is any year in which an employee worked for longer than six months.

Gratuity Can Be Paid Before Retirement

New Gratuity Rules – In general, gratuity is paid after retirement, however, there are some circumstances in which it can be given beforehand. These reasons include: