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.
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 gratuity formula that calculates the gratuity amount concerning the input values such as last drawn monthly income, several years (including the months) in service with the company, dearness allowance, etc.
Gratuity is a lump sum money that a company pays to its employee when he/she leaves 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 Indian gratuity system.
An individual can receive the gratuity if he/she fits in the following criteria:
The gratuity amount depends upon the tenure of service and last drawn salary. Gratuity Calculation Formula=Number of completed years of service (n)*basic salary last drawn plus dearness allowance (b)*15/26.
One can calculate his/her gratuity amount with the help of the following formula:
Here n= The service tenure completed by an individual in a company.
b = basic salary last drawn by an individual + the dearness allowance
Let us take an example to understand this, suppose a person A is working with a BCD company for 15 years. The last drawn basic salary of that individual with dearness allowance is Rs.30, 000. Therefore:
The gratuity amount = 15*30000*15/26 = Rs. 2, 59, 615
Note: One needs to notice two points here:
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.
To calculate the gratuity 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 in 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 in 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 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 nearest year which is 25 years.
In this way, by using any of the above formula (as per the employee), the gratuity calculator will calculate the gratuity.
According to the Payment of Gratuity Act of 1972, an employer holds the right to forfeit their gratuity payment. The employee have completed 5 years and above 5 years of service in a company. There are some rules of Gratuity. Let’s understand rules of Gratuity one by one.
G → 5 Years Continuous Job
R → Only after leaving the Job
A → An Upper Limit
T → Non-Taxable within Limit
U → Relaxation of Period on Death
I → After 10 Employees Rule Applies
T → Employer can give excess amount
Y → Protected against liabilities
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:
Note: In the latest announcement of Government of India’s interim budget of the year 2019, the bar for the amount of gratuity ceiling is raised to Rs.20 Lakhs from the last limit of Rs.10 Lakhs. This rule will be effective from 29th March’ 2018 and it will help the employees who are in service with PSUs and those employees who are not covered in the Payment of Gratuity Act.
Note: One is eligible to get the benefits of gratuity only after completing five years of continuous services with one organization. However, in the situation of disablement or death of an employee, this rule is not applied. The legal heir or nominee of the employee gets the gratuity amount as calculated in gratuity calculator.
Here the last salary drawn contains Basic Salary and Dearness Allowance both.
Here the last salary drawn contains Basic Salary, Commission on Sales, and Dearness Allowance.
Read More: Income Tax Login