Gratuity Calculator
A Gratuity Calculator is a tool designed to assist both employers and employees in determining the gratuity amount owed to an employee upon their termination of service. Whether you're an employer seeking to comply with labor laws or an employee anticipating a gratuity payout, this calculator streamlines the process, ensuring a clear understanding of the entitled benefits.
You’re eligible for gratuity after working for 5 years in the same organization
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- Gratuity Calculator: Check Rules, Eligibility and Formula
What is Gratuity?
A gratuity is a form of monetary benefit provided by an employer to an employee as a token of appreciation for the services rendered by the employee after completing five years. However, these five years must be continuous, and there should not be any gap in the services of the employee with that organization. This is governed by the Payment of Gratuity Act, 1972. 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.
Additionally, in certain situations, such as if an employee becomes disabled due to an accident or a disease, they can receive gratuity even before completing five years of service. This exception is made to support employees who face unexpected challenges that prevent them from continuing their work.
What is a Gratuity Calculator?
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.
What is the Eligibility Criteria to Receive Gratuity?
An individual can receive the gratuity if he/she fits in the following criteria:
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The individual must be eligible for superannuation.
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The individual must have resigned from his/her job after continuous employment with the same organization for five years.
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The individual must be retired from their job.
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In case of the death of that person, or if they become disabled due to accident or sickness.
How to Calculate Gratuity?
For gratuity calculation online, one has to apply the gratuity formula. However, to use this formula, an employee has to fall into any of the below categories:
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Those who are covered under the Payment of Gratuity Act, 1972.
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Those who are not covered under the Payment of Gratuity Act, 1972.
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For Employees Who Are Covered Under the Payment of Gratuity Act, 1972:
Gratuity Formula: The formula to calculate gratuity is as follows:
Gratuity Amount = (15 * Salary Last Drawn * Employment Period) / 26
Here, "Salary Last Drawn" includes the basic salary, commission on sales, and dearness allowance.
Let's take an example to illustrate this formula:
Mr. X's last drawn basic salary is Rs. 40,000 per month, and he worked with ABC Company for 25 years and 10 months.
Applying the formula:
Gratuity Amount of Mr. X = (15 * 40000 * 26) / 26 = Rs. 6,00,000
In this case, since the total tenure of service is 25 years and 10 months (which is rounded off to 26 years), Mr. X's gratuity is Rs. 6,00,000.
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For Employees Who Are Not Covered under the Payment of Gratuity 1972, Act:
Gratuity Amount = (15 * Last Drawn Salary * Years of Service) / 30
This calculation considers half a month's salary for each year of service. "Last Drawn Salary" includes basic pay, commission, and dearness allowance. The 15/30 represents half of a month's working days. Years of service are rounded down to the nearest full year.
Let's take an example to illustrate this formula
If Mr. X worked for 24 years and 5 months with a last drawn salary of Rs. 30,000:
Gratuity Amount = (15 * 30,000 * 25) / 30 = Rs. 3,75,000.
This is how you can calculate gratuity using the formula.
Dive deeper into your finances with the SIP Calculator.
How to Use the Policybazaar’s Gratuity Calculator?
Here's a step-by-step guide on how to use Policybazaar’s Gratuity Calculator:
Step 1: Go to the Policybazaar website and navigate to the Gratuity Calculator.
Step 2: Enter your monthly salary, which should include both basic pay and Dearness Allowance (DA).
Step 3: Provide the total number of years and months you've been in your current job.
Step 4: After entering this information, the calculator will generate an estimate of your gratuity amount.
What are the Benefits of Using the Policybazaar’s Gratuity Calculator?
Policybazaar's Gratuity Calculator offers several benefits, including:
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Accuracy: It provides precise calculations based on the latest gratuity rules and your specific details.
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Time-saving: Quickly estimate your gratuity amount without manual calculations or research.
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Customization: Tailored to your unique employment history and salary details for accurate results.
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Comprehensive: Consider factors like tenure, basic salary, and Dearness Allowance for a thorough calculation.
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Financial Planning: Enables better financial planning for retirement or career changes.
What are the Taxation Rules for Gratuity Payment?
For government employees, be they at the central, state, or local level, the gratuity amount is entirely tax-exempt.
For eligible private employees under an employer covered by the Gratuity Act, the lowest of the following three will be tax-exempt:
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Rs 20 lakh.
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The actual received gratuity amount.
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The eligible gratuity.
FAQ's
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How is gratuity calculated for employees with variable or commission-based income?
Gratuity is calculated based on the employee's basic salary. For employees with variable or commission-based income, the average of the last 12 months' basic salary is considered. -
Can an employer refuse to pay gratuity?
An employer can refuse to pay gratuity if the employee's termination is due to unethical behavior, wilful misconduct, or if the employee has not completed the minimum tenure of five years. -
Can an employee receive a gratuity before completing five years of service?
In certain cases, like death or incapacitation due to an accident or illness, an employee or their legal heirs may be eligible for gratuity before completing five years of service. -
Is gratuity applicable to all employees?
No, gratuity is typically applicable to employees who have completed a minimum of five years of continuous service with an organization. -
What is the eligibility for gratuity?
The employee who has completed the tenure of five years with one organization is eligible for gratuity. However, this tenure of five years should not have any break in the services of the employee, which means they must have a continuous five years’ service with one company. In addition to this, an employee who is terminated from their services from an organization after completing five or more continuous years with the organization is also eligible to get the gratuity. -
How much time does an employer take to release the gratuity amount?
According to government norms, the employer has to release the gratuity within 30 days from the full and final settlement date of an employee. However, any delay in this payment makes the employer liable for paying a simple interest on the amount of gratuity from the date that is due until the actual payment date. -
When does the gratuity amount is payable to an individual?
An individual can get the amount of gratuity upon:- Resignation or termination
- Disablement or death due to an accident or disease
- Retirement
- Layoff or retrenchment
- Voluntary Retirement Scheme (VRS)
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Is it necessary to follow the five years of continuous service rule for getting the gratuity amount?
This rule is applicable in most cases except the disablement or death of an employee during his/her service tenure with the company. In this situation, the nominee of the employee gets the gratuity amount as calculated by the gratuity calculator. -
If a person has resigned from their job after servicing the company for 4.5 years, will they be able to get the gratuity?
No, that person will not be able to get the benefits of gratuity as he/she has to complete at least 5 years of service. However, if the employee dies during their tenure, then their legal nominee or heir is eligible to get the gratuity amount, even if the deceased has not completed five years of service. In another case, as per the Madras High Court Rule, if an employee has served 240 days in the fifth year of the service with the company, then he/she is eligible to get the gratuity benefits. -
Does a contractual employee get the gratuity benefits after completing five years in the service?
If the contractual employee is on the company roll, he/she is regarded as the employee of the company. Therefore, he/she is eligible to get the benefits of the gratuity. However, if he/she works under some contractor who is not related to the company, then it is the responsibility of the contractor to provide a gratuity, not the company. -
Does the gratuity amount have any upper limit?
For government employees, the upper limit of gratuity amount is increased to Rs.20 Lakh (according to amendments made after the seventh pay commission). However, for non-government employees, the limit of gratuity is Rs.10 Lakh only as of now. -
Is there any facility of nominee available for gratuity amount?
Yes, there is a facility of nominee available for gratuity and to avail the same a person has to fill Form ‘F’ when he/she joins the company for nominating the beneficiary. -
The gratuity amount that one receives is taxable in which head of the Income Tax Act?
The amount of gratuity that one receives upon retirement or when leaving a job in service tenure is taxable in the head of ‘Income from Salary’. The amount that one receives as gratuity is must be shown in the head salaries while one is computing the income tax returns. This rule applies to both private and government employees. -
Can an organization refuse to pay the gratuity amount, if it is not stable financially?
An organization is bound to pay the gratuity amount irrespective of its financial condition. It cannot cite any financial loss as a reason to refuse the gratuity payment.
