Exemptions on Gratuity 

Purpose

This section describes the process followed by the SAP system, while computing exemptions on Gratuity.

Process Flow

Gratuity contribution taxationpayroll function (INGTX), computes the exemptions on the gratuity, received by an employee at the time of termination or retirement.

Exemption on gratuity is available in cases of:

·        Termination

·        Retirement

In both termination and retirement, exemption is given on Gratuity in the following cases:

¡        Termination/retirement period is the same as the Gratuity payment period

¡        Termination/retirement period is before the Gratuity payment period in the same financial year or another financial year. All payments made after termination/retirement are exempted from tax subject to the Gratuity exemption limit.

Exemption on Gratuity is not given in the following cases:

¡        Gratuity payment period is before the Termination/retirement period.

¡        Termination/retirement period is before the Gratuity payment period but the Gratuity payment is made in a financial year, which is after the termination/retirement year. Also, the payment is made with effect from a period (falling in a year before the financial year), in which the actual payment is made. In this case, Section 89(1) Relief on the Gratuity is given to the employee.

For example, the employee was terminated in February 2003. Gratuity payment is made to the employee in June 2004 with effect from March 2003. In this case, the employee does not get Gratuity exemption, instead the employee gets Section 89(1) Relief on the Gratuity payment.

Gratuity contribution taxationpayroll function (INGTX) computes the exemption on gratuity as a minimum of the following three factors:

...

·        Gratuity payments received

·        Tax limit

·        Number of months of salary for every completed year of service

Gratuity payments received

Gratuity contribution taxationpayroll function (INGTX) checks the internal table for the Gratuity wage types and obtains the Gratuity amount.

The Termination Workbench computes the Gratuity amount and stores the wage type for Gratuity in the Additional Payments infotype (0015). This wage type stores information on the amount (in the amount field BETRG) and the number of months of gratuity paid (in the number field ANZHL).

You can also directly enter the Gratuity amount in the Additional Payments infotype (0015).

·        During payroll processing, the Processing request for additional payments function (P0015) reads the Additional Payments infotype (0015) and stores the wage type for Gratuity in the internal table (IT).

·        Gratuity payments can be of two types:

¡        As per the gratuity act

In this case, Gratuity contribution taxation payroll function (INGTX) checks the internal table for the gratuity wage type that is associated with the tax code SAGA. Gratuity recieved wage type (MPG0) is the model wage type for gratuity payments as per the gratuity act.

¡        As per company policy

When the gratuity paid by the company is higher than the limits set by the Payment of Gratuity Act. In this case, Gratuity contribution taxation payroll function (INGTX) checks for the gratuity wage type associated with the tax code SNGA. Gratuity received wage type (MPG1) is the model wage type for the gratuity paid as per company policy.

To identify the tax codes for gratuity and the gratuity wage types associated with the two tax codes, the Gratuity contribution taxation payroll function (INGTX) checks the table view Taxability of wage types (V_T7INT9). It also determines the eligibility for gratuity through Pay Scale Grouping for Allowances from the table view Reimbursement Allowances Perks - eligibility and calculation (V_T7INA9). After identifying the wage type, associated with the tax code SNGA or SAGA, the Gratuity contribution taxation payroll function (INGTX) checks for these wage types in the internal table.

Ensure that you have configured the eligibility wage types (MPG0 and MPG1) as Gratuity, in the table view Reimbursement Allowances Perks - eligibility and calculation (V_T7INA9). Gratuity is an option under the Reimbursement/ allowance/perk indicator field.

For more information, see Gratuity.

Tax limit

·        Gratuity contribution taxation payroll function (INGTX) checks for the maximum amount of gratuity that can be exempt from tax. The maximum limit is as specified by the authorities. You can view the tax limit for the tax code SAGA using the table view Taxability of wage types (V_T7INT9).

·        If the employee, in any previous employment, received an exemption on the gratuity amount, the Gratuity contribution taxation payroll function (INGTX) will reduce the maximum limit on exemption by the amount already availed.

You can maintain the Gratuity exemption, claimed in a previous employment using the Previous Employment Tax Details infotype (0580). The Gratuity Exemption wage type (/4V8) stores the previous exemption amount.

Number of months of salary for every completed year of service

·        Payment as per Gratuity Act

In this case, gratuity is computed as the product of:

¡        No. of years of continuous service – The termination workbench calculates the number of years of service based on the employment Start Date and End Date. In the Termination Workbench, you have the option of overwriting the value computed by the Termination Workbench.

¡        Multiplication Factor for gratuity, which is equal to (K1 * 12) / 1000

K1 is the 1000*Stat Gratuity contrb perc constant (GRYCO), stored in the table view Payroll Constants (V_T511K). This factor is as defined by the Gratuity Act.

¡        Latest Nominal Basis

Gratuity contribution taxation payroll function (INGTX) takes the last nominal basis as the current nominal basis, and it makes use of the Last nominal basis rule (INLN) to obtain this value.

·        Payment as per Company Policy

If the payment of gratuity is as per company policy, the system computes gratuity as the product of:

¡        No. of years of service

The system computes this in a manner similar to that for the Payment as per Gratuity Act.

¡        Multiplication Factor for gratuity, which is equal to K2, divided by ten.

K2 is the constant (GRYTX) in the table view Payroll Constants (V_T511K). The value of this factor can be as per the company policy.

¡        Average Monthly Salary

The system computes the Average Monthly Salary as the average of the basis salary for a pre-defined number of months, preceding the period of termination or retirement. The Current nominal basis wage type (/129) stores the monthly basis salary for Gratuity.

The No. of months for avg. salary constant (GRAVS) of table view Payroll Constants (V_T511K) stores the pre-defined number of months for computing the Average Monthly Salary. The value is as specified by the authorities.

If basis salary data for the required number of months is not available in the SAP system, you can enter the same through the Additional Payments infotype (0015). Ensure that you pass the wage type for average salary as the first parameter (param 1), to the Gratuity contribution taxation payroll function (INGTX). You can use the model wage type Avg sal pre-instln wage type (MLIN) to create the wage type for average salary.

After selecting the minimum of the three exemption factors, Gratuity contribution taxation payroll function (INGTX) generates the Gratuity Cont. Exemption wage type (/4E8), in which it stores the current exemption on Gratuity.

Result

When you process the payroll for the employee in a period after termination/retirement, the system will import the Gratuity exemption results, from the termination/retirement period into the period under consideration.

The Processing the last results table payroll function (PLRT) makes use of the B/F Termination related exemptions for Payroll after termination rule (INTT) to import the results. The rule checks the Last Results Table (LRT) for the gratuity wage types and imports them into the current period. The system does not make any changes in the imported results.