Gratuity Act
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In India, gratuity rules and requirements are set out under the Payment of Gratuity Act, 1972. An employer may also choose to pay gratuity outside of that which is required by this Act. The Payment of Gratuity (Amendment) Act, 2018 enables the government to raise the limit of tax-free gratuity. The change can be made through an executive order by the prime minister.
Gratuity is paid when an employee :
• Is eligible for superannuation; • Retires; • Resigns; or • Passes away or is rendered disabled due to accident or illness (if an employee passes away, gratuity will be paid to the employee’s nominee).
Gratuity calculation formula,
Gratuity = Last Drawn Salary × 15/26 × No. of Years of Service
Last drawn salary = Basic Salary + Dearness Allowance.
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