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## What is meant by Gratuity?

Gratuity refers to an amount of money which an employer pays to his employee in return for services offered by him to the company. However, only those employees who have been employed in the company for five years or more than five years are given gratuity. You may perceive gratuity like gratitude expressed by the company towards their employees for their services. It is governed by the Payment of Gratuity Act 1972.

## What is the eligibility criteria for payment of Gratuity?

In order to receive gratuity, you need to fit the following eligibility criteria:

1. You should be eligible for superannuation

2. You should have retired from the job

3. You should have resigned after remaining employed for 5 years with the company

4. In case of your death, or if you become disabled on account of sickness or accident

## What is the formula for calculating amount of Gratuity?

The amount of gratuity can be calculated using the following formula

Gratuity = n*b*15/26

Where n = tenure of service completed in the company

b = last drawn basic salary + dearness allowance

Imagine that you worked with XYZ company for a period of 15 years. Your last drawn basic salary along with dearness allowance was Rs 30000. Hence,

The amount of gratuity = 15*30000*15/26 = Rs 2,59,615

Two points need to be noted here:

As per the Gratuity Act, the amount of gratuity cannot be more than Rs 10 lakh. Any excesses would be treated as ex-gratia

If the last few months in the last year of employment are more than 6 months, then it will be rounded to next number. Suppose your tenure of service is 16 years 7 months, then you receive gratuity for 17 years. Otherwise for 16 years if it happens to be 16 years 4 months

## What are the taxation rules for Gratuity?

The tax treatment of gratuity depends on the nature of the employee who is in receipt of gratuity. There are 3 major categories in this

The government employee who is eligible for gratuity The amount of gratuity received by any government employee (whether central/state/local authority) will be exempt from income tax. Any other eligible employee whose employer is covered under Payment of Gratuity Act In this case, last drawn salary of only fifteen days will be exempt from income tax.

Any other eligible employee whose employer is not covered under Payment of Gratuity Act Here, the least of the following 3 amounts will be exempt from income tax:

a.Rs 10 lakh

b.The actual amount of gratuity received

c.Half month’s salary for every year of employment that the employee has completed with the employer

## Frequently Asked Questions on Gratuity

Q. I resigned from my job after working for 4.5 years. Would I be eligible to receive gratuity?

A) No. You need to complete at least 5 years of service to be eligible for payment of gratuity. However, according to a ruling of Madras High Court, an employee is eligible for gratuity in case he completes 240 days of service in the fifth year of service In yet another case, if the employee dies during his employment, his legal heir will be eligible for gratuity even if he did not complete 5 years of service

Q. If an individual is a contract employee, will he receive gratuity upon completing 5 years in service?

A) If the individual is on the rolls of the company rolls, he will be regarded as an employee. He will be eligible to receive gratuity. But, if he works under a contractor who is not part of the company, then contractor will be responsible to provide the gratuity and not the company

Q. Is there any upper limit on the amount of gratuity that will be received?

A) Yes. The amount of gratuity paid by a company cannot exceed more than Rs. 10 lakh, irrespective of the number of years of service of the employment.

Q. How much time does the employer take to release the amount of gratuity?

A) Ideally, as per the government mandate, the employer should remit the gratuity within 30 days from the date of full and final settlement of the employee. In case of any delay in payment, the employer is liable to pay a simple interest on the gratuity from the due date until the date when payment is made.

## Interest rates applicable for Loan against Property

Generally mortgage loans are charged a lower interest rate as compared to personal loans. As a result, the EMIs are also lower compared to that of personal loan. The interest charges varies according to the type of property. For instance, rate of interest on a residential property would be different than that of a commercial property. As of now, mortgage loan interest rates lie in the range of 12% to 15.75%. The rates could also differ based on whether you are salaried or self employed. In addition to this, a processing fee equal to 1-2% of the total loan amount is also charged by the banks