At the time of your retirement, your colleagues bid you farewell. It’s a way of showing their acknowledgment and recognition for all the substantial years you’ve served.
On your exit a significant and effective reward is also given by the owner of the organization in the form of free cash. In financial parlance this is called gratuity.
Gratuity depends upon the number of years you have rendered your services to the organization.
More About Gratuity
Elle Money tells you all about this little known- windfall and how to utilize effectively the free money- the gratuity.
When are you entitled for gratuity?
In olden days, gratuity was arbitrary and was a hostage to the employer’s whims. A rich employer might reward his dedicated and privileged employees with gratuity and might not give it to the others disliked or not so favorite ones.
This led to a lot of discord and dissatisfaction among the employees.
Later on by legislation, gratuity became mandatory for every employee.
How Much you Get as Gratuity
An individual becomes entitled to gratuity soon after resignation or five years after retirement. The gratuity amount is equivalent to 15 days’ wages multiplied by the number of years served by you. Wages include your basic pay plus the dearness allowances.
Tax Treatment
For a government employee any amount of gratuity is tax-free, but for non-government employee gratuity up to Rs 350,000 is tax exempted.
In case of death of the employee, his/her heir is entitled for the gratuity amount and the entire amount is tax-free.
Some Useful Tips
Here are some useful tips to follow:
1. Invest
Remember gratuity supports and strengthens your economy. So don’t be tempted to splurge, go for the better proposition of investing it.
2. Reduce the debt
Gratuity is a lump sum amount so it would be a good option to pay off the debt or increase the loan down payment. First lessen the liabilities of debt and then invest the surplus amount.
3. Cash buffer
In times of emergencies, you need cash buffers. Putting your leftover cash in equity funds or PPF is advisable as these instruments and debt sorting methods are very effective.
4.Regular income
Gratuity can also be used as a source of regular income. Invest it in Senior Citizens’ Savings Scheme, fixed deposits in bank or post office as worthy income options.
As a token of acknowledgment, your company pays you lump sum cash for your loyalties to the organization. It is payable only after you have spent certain years with the organization.
Gratuity is a considerable amount and raises splurge-instincts. By using effectively, it can cushion your present and future personal finances quite well.
