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Formula sheet/NISM Series X-B: Investment Adviser (Level 2)/Retirement Planning
[ RETIREMENT PLANNING ]

Statutory Gratuity, Superannuation & Tax Caps

Gratuity(Covered under Gratuity Act1972):Gratuity=(15×Last Drawn Salary×Completed Years of Service)/26Gratuity (\text{Covered under Gratuity Act} 1972): Gratuity = ( 15 \times \text{Last Drawn Salary} \times \text{Completed Years of Service} ) / 26
Gratuity(Not Covered under Act):Gratuity=(15×10−Month Average Salary×Completed Years of Service)/30Gratuity (\text{Not Covered under Act}): Gratuity = ( 15 \times 10-\text{Month Average Salary} \times \text{Completed Years of Service} ) / 30
Central Govt Gratuity:1/4×(Basic+DA)×Completed6−Monthly Periods(Max16.5x salary,statutory cap Rs20Lakhs)\text{Central Govt Gratuity}: 1/4 \times (Basic + DA) \times Completed 6-\text{Monthly Periods} (Max 16.5\text{x salary}, \text{statutory cap Rs} 20 Lakhs)
Tax Exemption Cap:Minimum of(a)Actual Gratuity,(b)Formula Amount,(c)Rs20,00,000.\text{Tax Exemption Cap}: \text{Minimum of} (a) \text{Actual Gratuity}, (b) \text{Formula Amount}, (c) Rs 20,00,000.
EPF Employee Interest Tax Cap:Interest on employee annual contribution exceeding Rs2,50,000(EPF+VPF)is fully taxable.\text{EPF Employee Interest Tax Cap}: \text{Interest on employee annual contribution exceeding Rs} 2,50,000 (EPF + VPF) \text{is fully taxable}.
Employer Welfare Cap:Aggregate employer contributions to PF+NPS+Superannuation exceeding Rs7,50,000are taxed as perquisites.\text{Employer Welfare Cap}: \text{Aggregate employer contributions to PF} + NPS + \text{Superannuation exceeding Rs} 7,50,000 \text{are taxed as perquisites}.
Variables

For Gratuity Act covered employees, service > 6 months is rounded up to a full year; for uncovered employees, only completed years count.

Worked examples
Retirement Living Expenses, Corpus Sizing & Accumulation Savings

A 40-year-old individual currently spends Rs 50,000 per month (Rs 6,00,000 p.a.) on living expenses and plans to retire at age 60 (20 working years left). He expects to live for 25 years in retirement (up to age 85). Economic assumptions: Pre- and post-retirement inflation = 8.0% p.a.; Post-retirement investment yield = 9.0% p.a. Pre-retirement accumulation return on investments = 12.0% p.a. Calculate (1) Living expenses in Year 1 of retirement, (2) Total Retirement Corpus required at age 60, and (3) Monthly savings required during the 20-year accumulation phase.

Statutory Gratuity Calculation (Covered vs. Not Covered under Act)

An employee retires after completing 20 years and 7 months of continuous service. His last drawn Basic Pay is Rs 60,000 per month, and Dearness Allowance is Rs 10,000 per month. His 10-month average salary is Rs 65,000 per month. Calculate the statutory gratuity payable: (Case 1) If the employer is covered under the Payment of Gratuity Act, 1972; (Case 2) If the employer is not covered under the Gratuity Act.

Taxability of Excess Employer Contributions to PF, NPS & Superannuation

During FY2024-25, an executive's employer contributes: (1) Rs 4,50,000 to Recognised Provident Fund (RPF), (2) Rs 3,00,000 to National Pension System (NPS), and (3) Rs 2,00,000 to an Approved Superannuation Fund. Total employer contribution = Rs 9,50,000. Calculate the perquisite value taxable under Section 17(2)(vii) in the hands of the employee.