Labour law
1 month ago
In supreme court judgement for epf purpose all the allowances are combined with basic salary to calculate pf wages but for the purpose of gratuity ..it considers only basic salary or total salary including allowances?
A.Dear Client,
As per Section 2(s) of the Payment of Gratuity Act, 1972, "wages" means all emoluments that are earned by an employee while on duty or on leave following the terms and conditions of his employment and which are paid or arc payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance. In the case of computation of gratuity, the wages or salary includes only basic salary and dearness allowance last drawn by the employee before resignation or retirement. Gratuity = N*B*15/26. Here, N = Number of Years Serviced in the Organization, B = Basic Salary including DA and 15/26. - 15 defines half-month compensation of 15 days and 26 represents the number of working days in a month (excluding Sundays) For example, Amit has worked with a company for 20 years and had Rs.25,000 as his last drawn basic plus DA amount, then, Gratuity Amount for Amit = 20*25,000*15/26 = Rs.2,88,461.54. So, for the calculation of gratuity under the Payment of Gratuity Act, salary/wages include only Basic salary and Dearness Allowance (DA). There won't be any other components that will be considered for the calculation of gratuity and subject to a cap of Rs.20 lakh (tax-free gratuity)
As per Section 2(s) of the Payment of Gratuity Act, 1972, "wages" means all emoluments that are earned by an employee while on duty or on leave following the terms and conditions of his employment and which are paid or arc payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance. In the case of computation of gratuity, the wages or salary includes only basic salary and dearness allowance last drawn by the employee before resignation or retirement. Gratuity = N*B*15/26. Here, N = Number of Years Serviced in the Organization, B = Basic Salary including DA and 15/26. - 15 defines half-month compensation of 15 days and 26 represents the number of working days in a month (excluding Sundays) For example, Amit has worked with a company for 20 years and had Rs.25,000 as his last drawn basic plus DA amount, then, Gratuity Amount for Amit = 20*25,000*15/26 = Rs.2,88,461.54. So, for the calculation of gratuity under the Payment of Gratuity Act, salary/wages include only Basic salary and Dearness Allowance (DA). There won't be any other components that will be considered for the calculation of gratuity and subject to a cap of Rs.20 lakh (tax-free gratuity)
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