Gratuity Calculator

What is Gratuity?

Gratuity is a calculated amount of money paid by the employer to the employee as a token of gratitude for services rendered to the company. It is a benefit awarded to employees under the Payment of Gratuity Act, 1972. It is included as one of the components of the salary break-up.

Gratuity is awarded to the employee only upon completing 5 years or more with the company. It is paid at the time of retirement, resignation, lay-off or termination of the employee. The employee can be awarded Gratuity earlier in case of accident, disease or disability.

The Gratuity earned depends on the last drawn salary of the employee as well as the number of years of service provided by him to the company.

What is a Gratuity calculator?

A Gratuity calculator is a handy tool to get an instant estimate of the amount an employee is eligible to get on leaving a job after rendering at least 5 years of service to a company. The inputs that are required to use this calculator are:

1. The last drawn salary2. Number of years served to company (including months)3. Dearness Allowance

The calculator uses these inputs to instantly tell you your Gratuity amount.

How does a Gratuity calculator work?

All the Gratuity rules & calculations are based on the provisions of the Payment of Gratuity Act, 1972.

Gratuity is calculated in two different ways for employees covered under the act and employees not covered under the act. In order to calculate the amount, the Gratuity calculator uses two perimeters; the total number of years that an employee has worked for the company and the employee’s last drawn salary. In the case of a government employee or employees with more structured salary break ups, an additional input for Dearness Allowance is required. There is no set percentage provided by law to calculate the Gratuity amount that an employee is eligible to receive after retirement or resignation.

What is the Gratuity calculation formula?

For employees who are covered under the Payment of Gratuity Act, the following formula is used to calculate the Gratuity amount:

Gratuity = (a x b x 15) / 26,

Where,

a = Years of service

b = Last drawn salary

The basic salary and dearness allowance is included in the last drawn salary.

For example: If Dhruv has served for 20 years in a company and his last drawn salary (including basic salary and dearness allowance) was Rs. 30,000, then:

Gratuity amount for Dhruv = (20  x  30,000 x 15) / 26 = Rs. 3,46,153.846

For employees not covered in the Gratuity Act, the following formula is used to calculate the Gratuity amount:

Gratuity = (a x b x 15) / 30

Keeping in mind the same example, if Dhruv did not fall under the purview of the act, he would receive:

Gratuity amount for Dhruv = (20  x  30,000 x 15) / 30 = Rs. 3,00,000

What are the eligibility criteria for the payment of Gratuity?

The Gratuity calculation eligibility is determined by either of the following criteria:

• The employee must be eligible for superannuation;

• The employee must be retired from service;

• The employee resigned after 5 years of uninterrupted employment with the company;

• The employee passes away or suffers a disability caused by an illness or an accident. The Gratuity is paid to the spouse or nominee in this case.

What are the taxation rules for Gratuity?

The taxation rules for Gratuity are conditional on the type of employment of the individual receiving the Gratuity.

• The Gratuity received by a government employee, irrespective of central, state or local authority, is exempt from income tax;

• The Gratuity received by an eligible private employee whose employer is covered under the Payment of Gratuity Act will receive a tax exemption on the least of the following amounts:

  • The eligibility Gratuity;

  • The actual amount of Gratuity received;

  • Rs. 20 lakh

What are the benefits of using a Gratuity calculator?

The Upstox Employee Gratuity calculator is an easy to use tool that does not require any technical knowledge or expertise. It provides the Gratuity amount instantly within seconds, based on the Gratuity calculator formula. The calculator also helps one plan for retirement as well as long-term financial planning especially for those who wish to invest the amount smartly, for maximum returns.

Gratuity Calculation Chart:

How is Upstox the best online Gratuity Calculator?

Being a master player of the finance world, Upstox is committed to providing a seamless experience when it comes to your finances. Our online Gratuity calculator is built with the best user interface, making it easy to use, speedy & comfortable. The Gratuity calculator is designed to help you align your financial goals & current investments.