Page 165 - Group Insurance and Retirement Benefit IC 83 E- Book

Illustration

Let‘s understand the above math clearly with an example:
Varun had been working with an IT company since past 10 years, 7 months. He is retiring
th
on 15 April, 2010. His current Basic = Rs 40,000 pm, DA = Rs 5,000 pm. He is going to
receive a gratuity amount of Rs 3 lakhs on retirement. Note: Varun‘s basic and DA have

been the same since past 1 year.

Let‘s consider 2 situations here – (a) Varun‘s employer is covered under Payment of

Gratuity Act, 1972; and (b) Varun‘s employer is not covered under Payment of Gratuity
Act, 1972.

Salary = Basic + DA = Rs 40,000 pm + Rs 5,000 pm = Rs 45,000 pm
Average salary = 10 months‘ salary (immediately preceding the month of leaving

the job)/10 = (Rs 45,000 pm * 10)/10 = Rs 45,000 pm. Therefore, half-month‘s
average salary is = Rs 45,000/2

Important points to remember

Generally, only government employers give DA to their employees. Above

example is only for illustrative purpose.
The salary of the employee may differ over a period of time on account of change

in basic, DA and/or other factors.
In case gratuity is received from more than one employer during the previous

year, maximum exemption allowed is up to Rs 10,00,000.
Where employee has already claimed gratuity exemption in any previous year (s),

the maximum exemption amount allowed for the current previous year i.e. Rs

10,00,000 will be reduced by the amount of deduction already claimed in the
previous years.

In case of an employee who is employed in a seasonal establishment ( not

employed throughout the year), the gratuity exemption shall be for seven days
wages for each season.