Salary Definition for Calculation of Gratuity,HRA, EPF
It is important for every employee to know about a few financial terms like HRA, EPF, Gratuity etc. Since these are essential components of salary understanding these terms will help you to have a better understanding of your salary structure.Not everyone is well versed in financial terms. while it might not be necessary to know every financial term under the sun, it is very important to know a few definitions. Your salary consists of many components such as Basic, HRA, EPF, concessional house and much more.
It is very important to know and understand these components so that you get a better understanding of the structure of your salary. Given below are some of the important definitions of the components of your salary.
Calculation of gratuity covered under the payment of gratuity act
For the calculation of gratuity, salary includes only Basic salary and Dearness Allowance (DA). There won’t be any other components that will be considered for the calculation of gratuity here.
Calculation of gratuity not covered under the payment of gratuity act
Gratuity can also be calculated for those not covered under the payment of gratuity act. For the calculation of gratuity here, salary includes Basic salary, Dearness Allowance (DA) and Commission (if paid as a percentage of turnover).
House rent allowance (HRA)
House Rent Allowance is paid by the employer to the employee as part of their salary. To calculate House Rent Allowance (HRA) one has to consider Basic Salary, Dearness Allowance(DA) and Commission that is if paid as percentage of turnover. Again in this case too DA need to be considered if it is forming part of retirement benefit otherwise not to consider and Commission also need to percentage of turnover.
Employee Provident Fund (EPF)
To calculate the salary components under employer’s contribution towards the provident fund, one has to consider the same salary components of HRA i.e; Basic Salary, Dearness Allowance(DA) and Commission (if paid as percentage of turnover).
Leave encashment
In this case also you need to consider the same salary components as you considered for HRA and EPF.
Rent-free/concessional house perquisite valuation
Salary components such as Basic salary, Dearness Allowance, Bonus, Commission, fees, all taxable allowances(excluding amount that is not taxable) and all sorts of monetary payment which is chargeable by tax are considered while calculating the valuation of perquisite.
FAQs on Salary Definition for Calculation of Gratuity
- What is the gratuity calculation of 15/26?
The following formula is used to determine an employee's gratuity: Gratuity = Last salary drawn x (15/26) x Years of service. In this instance, 26 is the anticipated number of workdays in a month, and 15 days' worth of wages is used to account for gratuity calculations. The Dearness Allowance (DA) plus basic income are multiplied by 26 to determine the daily pay. A half-month pay is obtained by double the daily wage by 15.
- After working for the same company for five years, how much gratuity is available?
A person is qualified for the gratuity benefit after five years of continuous employment with the same company. It is payable upon superannuation, retirement, resignation, or termination (the gratuity may be rejected if the employee's misconduct is the reason for the termination), as well as upon death or disablement from an accident or disease (the applicable legal heir or nominee will receive the full amount of the gratuity in this scenario; continuous service of five years is not relevant). The specified maximum gratuity amount is Rs 20 lakh.
- Does a person have to work five years straight in order to be eligible for a gratuity?
Yes, in order to collect a gratuity, all employees must work five years straight. Employees do not, however, need to work five years in order to collect a gratuity from their employer if they experience a disability, illness, or death.
- If my company files for bankruptcy, will I still be entitled to my gratuity?
Your employer's bankruptcy would not prevent you from receiving the gratuity. The amount of the gratuity cannot be suspended by a court order.
- How long does it take the employer to give the amount of the gratuity?
Within 30 days of the date the gratuity becomes payable, an employee who qualifies for it can file an application. Nevertheless, just because the claimant failed to submit the application within the allotted period does not mean that the gratuity claim is void. Within 15 days of receiving the application, the employer must specify the amount of the gratuity. After the application form is received by the employer, the gratuity amount has to be paid within 30 days. The employer is obligated to pay the gratuity amount plus any simple interest incurred in the event that the deadline is missed.
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