Employees in India receive various financial benefits in addition to their salary. Gratuity is a significant benefit. This amount is paid by the company in exchange for long service. Previously, it was mandatory to complete at least five years of service to receive gratuity, but with the implementation of the new labor law, this requirement has changed. Now, employees are eligible to receive gratuity even after completing just one year of service. This change has increased curiosity among people about how much gratuity is received for one year and how it is calculated.
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How is gratuity calculated for one year of service?
Gratuity is calculated based on a fixed formula. In this, the last month’s basic salary and DA are combined to arrive at a single amount. The formula is: (Last Salary x 15 x Years of Service) / 26. 26 represents the average working days for a month, and 15 days’ salary is considered the standard for gratuity calculations. If an employee completes one year of service, one is added in place of the number of years of service.
For example, if an employee’s last salary was ₹30,000, the gratuity calculation would be: (30,000 x 15 x 1) / 26. This results in approximately ₹17,307. This means the employee is entitled to this amount for one year of employment.
Why is gratuity available even within one year?
After the implementation of the new labor law, a major change has been made in favor of employees regarding gratuity. Now, even employees who change jobs or are at the entry level can easily avail of this benefit. There was already a provision to treat six months of service as equivalent to one year, but now the rules have become simpler, providing protection even for short-term employees.
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Gratuity is not taxable
The gratuity received by an employee is completely tax-free. Consequently, any gratuity amount that accrues to you is credited directly to you without any deductions. If your basic salary is higher, the gratuity amount increases proportionately.
The new provision is considered a major relief for young professionals and employees who frequently change jobs. This not only increases their financial security but also empowers them to seek new job opportunities.