Gratuity Calculator
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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 salary
2. 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.
Frequently Asked Questions
How can I calculate my Gratuity?
You can calculate your Gratuity using the Gratuity calculator or the Gratuity calculation formula.
If you 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 you have served for 15 years in a company and his last drawn salary (including basic salary and dearness allowance) was Rs. 35,000, then:
Gratuity amount for you = (15 x 35,000 x 15) / 26 = Rs. 3,02,884.615
If you are 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 you did not fall under the purview of the act, you would receive:
Gratuity amount for you = (15 x 35,000 x 15) / 30 = Rs. 2,62,500
How do you calculate Employee Gratuity?
The employer can calculate employee Gratuity using the Gratuity calculator or the Gratuity calculation formula.
In order to calculate the Gratuity of an employee covered under the Payment of Gratuity Act, the employer must use the following formula 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.
If the employee is not covered in the Gratuity Act, the employer must use the following formula to calculate the Gratuity amount:
Gratuity = (a x b x 15) / 30
Is Gratuity calculator different for private & government employees?
The Gratuity calculation formula for private and government employees is the same. However, there is a difference in tax payable for the two kinds of employees. The Gratuity received by government employees, irrespective of central, state or local authority, is entirely exempt from income tax. On the other hand, Gratuity received by private-sector employees is taxable. However, they 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 is the percentage of Gratuity?
There is no set percentage provided by law to calculate the Gratuity amount that an employee is eligible to receive after retirement or resignation.
How is tax on Gratuity calculated?
The tax treatment is different for Private & Government sector employees. For government employees, all Gratuity is tax free or tax exempt, but they still need to fill it out in their ITR forms.
Private sector employees on the other hand, the tax exemption is given on the lesser of the 3 amounts of the following:
- Eligible Gratuity
- Actual Gratuity
- Rs. 20,00,000 (effective from March 29, 2018)
How can a Gratuity calculator help you?
Calculating the Gratuity can be a long and tedious process, prone to human error. A Gratuity calculator uses the Gratuity formula and ensures a correct and swift response.
How to calculate Gratuity on retirement?
The retirement Gratuity calculation formula is payable to an employee upon retirement, provided they worked for a minimum of 5 years for the company. It is calculated basis his last drawn monthly salary and Dearness Allowance.
Calculation of Gratuity on retirement = (Years of Service x Last drawn basic monthly salary x 15) / 26
26 here stands for the number of working days in the month.
So, for example, Amir joined ABC at age 25 years & retired at 60. His basic salary at 60 was 2,00,000. Basis this his Gratuity will be:
(35 x 2,00,000 x 15)/26 = Rs. 40,38,461
How much time does an employer take to pay the Gratuity amount?
The employer and employee must undergo a three-step process in order to complete the Gratuity process.
- Initiation: The employee must send an application to the employer regarding their Gratuity amount.
- Acknowledgement & Calculation: As soon as the employer receives the application, the company must immediately begin the Gratuity amount calculation. They must also provide a notice of acknowledgement to the employee & the controlling authority with the Gratuity amount specified.
- Disbursal: The employer must disburse the gratuity amount to the employee within 30 days of acknowledgement.
If there is a delay in payment, the employer is liable to pay simple interest until the day of payment.
Is there any upper cap on Gratuity?
Yes, there is an upper cap or Rs. 20 lakh, of the Gratuity that an employee is eligible to receive, regardless of the number of years the employee has been in service and their previous drawn salary.
How is Gratuity calculated in salary break-up?
The Gratuity is calculated based on the basic salary & Dearness Allowance. It is 4.81% of the basic salary and mentioned separately in the salary break up.
Is Gratuity deducted from salary every month?
No, the Gratuity amount is the amount owed by the employer to an employee as a token of gratitude for service of 5 years or more. The employer cannot deduct this from the employee salary, instead they must make a separate provision for the same. The Gratuity is often separated from base salary (4.81%) and is mentioned in the gross salary break up.
What is the rule of Gratuity?
The rule of Gratuity includes the forfeiture of Gratuity & the timeline for Gratuity payment.
Forfeiture of Gratuity
As per the Payment of Gratuity Act of 1972, the employer has the right to forfeit the Gratuity payment, fully or partially even if the employees have served their 5 years or more in the company. This is eligible in the case that the employee has been terminated from the company due to disorderly conduct when they may have tried to physically harm another individual during their employment.
Timeline for Gratuity payment
Gratuity payment is a 3 step process:
Step 1: Initiation: The employee must send an application to the employer for their Gratuity amount.
Step 2: Acknowledgement & Calculation: As soon as the application is received by the employer, the company will immediately start the Gratuity amount calculation as well as provide a notice of acknowledgement to the employee & the controlling authority with the amount specified.
Step 3: Disbursal: The Gratuity amount will be disbursed by the employer to the employee within 30 days of acknowledgement.
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Disclaimer:
This calculator is meant to be used for indicative purposes only. It is designed to assist you in determining the appropriate amount of prospective investments. This calculator alone is not sufficient and shouldn’t be used for the development or implementation of any investment strategy. Upstox does not take the responsibility/liability nor does it undertake the authenticity of the figures calculated therein. Upstox makes no warranty about the accuracy of the calculators/reckoners. The examples do not claim to represent the performance of any security or investments. In view of the individual nature of tax consequences, each investor is advised to consult his/her own professional tax advisor before making any investment decisions on the basis of the results provided through the use of this calculator.