The gratuity calculator calculates the lump sum amount that a person may get when he/she leaves a job after completing at least five continuous years with an organization.
You’re eligible for gratuity after working for 5 years in the same organization
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A gratuity calculator is a tool to estimate the amount of gratuity that one will earn once he/she leaves a job after completing at least five years in the service of a company. There are many online gratuity calculators available that estimate the amount of gratuity a person will get. The gratuity calculators work on the gratuity formula that calculates the gratuity amount concerning the input values such as last drawn monthly income, years (including the months) in service with the company, dearness allowance, etc.
Gratuity is a lump sum money that a company pays to its employees when they leave the organization after completing five years in it. However, these five years must be continuous and there should not be any gap in the services of the employee with that organization. In this way, gratuity works as a retirement benefit that an employee receives after working for at least five years in a row with a company. According to the Payment of Gratuity Act, 1972, there is a set of certain requirements and rules that are associated with the Indian gratuity system.
An individual can receive the gratuity if he/she fits in the following criteria:
For gratuity calculation online, one has to apply the gratuity formula. However, for using this formula an employee has to fall in any of the below categories:
For Employees Who Are Covered Under the Payment of Gratuity Act, 1972:
The gratuity formula in this case is:
Gratuity Amount = (15* Salary Last Drawn * Employment Period)/ 26
Where, the salary last drawn includes the basic salary, commission on sales, and dearness allowance. Let us take an example to understand this:
Example: For instance, the last drawn basic salary of Mr. X is Rs.40, 000/ month and his employment with ABC Company was for 25 years 10 months. In this case, the gratuity will be:
Gratuity Amount = (15 * Salary Last Drawn * Employment Period)/ 26
Gratuity Amount of Mr. X= (15*40000*26)/26 = Rs.6, 00, 000
Since, the total tenure of service, in this case, is 25 years 10 months which is rounded off to 26 years.
For Employees Who Are Not Covered under the Payment of Gratuity 1972, Act
The gratuity formula for those who are not covered in the Payment of Gratuity Act is as follows:
Gratuity Amount = (15 * Salary Last Drawn * Employment Period)/ 30
Here, the amount of gratuity that one gets depends on the half month’s salary for each completed service year. The salary last drawn carries the basic salary, commission on the sale, and dearness allowance.
The 15/30 calculation represents 15 days out of working days of a month which are 30. The total number of service years is rounded down to the closest full year. To understand this, let us take an example:
Example: For instance, Mr.X is working with a firm that does not come under the Payment of Gratuity, 1972, Act. However, the basic salary that he last drew was Rs.30, 000/ month and he has served that organization for 24 years 5 months. As per the above gratuity formula for this case:
Gratuity Amount = (15 * 30000 *25)/ 30 = 3, 75, 000
Here, the service tenure is rounded off to the nearest year which is 25 years.
In this way, by using any of the above formulas (as per the employee), the gratuity calculator will calculate the gratuity.
So, the gratuity payment depends on the below two factors:
No set percentage is provided by the law for calculating the actual gratuity amount that an employee is required to get at retirement or while leaving the organization. The employer can utilize the formula-regulated approach for arriving at the result or can as well pay higher than that.
According to the Payment of Gratuity Act of 1972, an employer holds the right to forfeit their gratuity payment. The employee has completed 5 years and above 5 years of service in a company. There are some rules of Gratuity. Let’s understand the rules of Gratuity one by one.
After the gratuity calculation, it is time to understand the taxation rules for gratuity. The taxation on gratuity directly depends on the employee type. The employees can briefly be divided into three main categories:
Any government employee is eligible to get a tax-free gratuity. The total amount that any government employee gets as gratuity is exempted from income tax be he/she is a central government employee, state government employee, or employee of the local authority.
The employees whose employers are covered under the Payment of Gratuity Act will get income tax exempted over the last drawn income of 15 days.
The employees whose employers are not covered in the Payment of Gratuity Act, 1972 will get income tax exemption from least of the any of the below amounts: