Gratuity Calculator: Estimate End-of-Service Benefit

Final month's salary + D.A.

₹

How long did you work? (Min:5 Years)

Gratuity Calculator:

This gratuity calculator helps employees estimate their end-of-service benefit. It helps determine the gratuity amount an employee is eligible for when leaving a job due to resignation, retirement, or termination. The calculation is based on your basic salary and total years of service, as per the Payment of Gratuity Act, 1972 in India.

What is Gratuity?

Gratuity is the amount that an employer pays to his staff as a form of appreciation for their continuous long service.

However, it is a form of social security benefit provided to employees when they resign, retire, or terminate after completing five years or more of service.

It is governed by labor laws and the Payment of Gratuity Act of 1972. Employees can receive gratuity before 5 years of service if he/she suffers a disability from an accident or a disease.

What are the Eligibility Criteria for Gratuity Amount?

To be eligible for payment of gratuity, an employee typically must meet certain criteria, which often include:

Individuals must have a minimum of 5 years of continuous service with the same employer.
Some reasons for payment:
- Retirement or Superannuation
- Resignation or Voluntary Retirement
- Death or Disablement (no minimum service required)
The employer must have 10 or more employees at any time during the preceding 12 months.

How To Calculate Gratuity?

Act-Based Gratuity Formula:

G = n*b*15 / 26

Where:

G = Gratuity amount
n = Number of years of service
b = Last drawn basic salary plus dearness allowance (DA)

Gratuity Calculation for Non-Act Covered Employers:

Employees whose employers do not fall under the Gratuity Act will have their gratuity calculated as half a month's salary on each completed year of service. The formula is as:

Gratuity = 15 * Your last drawn salary * the working tenure / 30

Example:

An employee worked for a company for 9 years and 4 months and has a last drawn basic salary of $2,000 per month. What is the gratuity amount payable to the employee?

Solution:

Step 1: Determine the completed years of service

Since the employee worked for 9 years and 4 months, only 9 full years are considered.

Step 2: Use the gratuity formula

Gratuity = (15 * your last drawn salary * tenure of working) / 26

Step 3: Substitute the values

G = 2000 * 9 * 15 / 26

G = 270,000 / 26

G = 10,384.62

The gratuity amount payable to the employee is $10,384.62.

What are the Taxation Rules for Gratuity?

Gratuity is taxable income yet there are certain exemptions available under the Income Tax Act. The rules for tax exemptions vary among employees based on the type of employers and their stance under the Gratuity Act.

If you are a government employee, then you can get full tax exemption on the entire gratuity amount.
As a non-government employee under the Gratuity Act, you can get tax exemption on the lower of the following amounts:
- ₹ 20 lakh
- The actual amount of gratuity received
- The eligible gratuity

When your employee is not governed by the Gratuity Act, you can claim a tax exemption on the smaller of these amounts:

Average salary of half a month * Years of service
Up to ₹20 Lakh is the maximum gratuity
The entire gratuity amount received

How Does This Gratuity Calculator Function?

Follow these steps to use the gratuity calculator accurately:

✔️ Enter the salary (Basic Pay + D.A)

✔️ Enter the years of service (at least 5 years of service required)

✔️ Click on the “CALCULATE” button

✔️ The gratuity amount calculator estimates the total gratuity amount payable to you

Here are two points that are important to be considered:

As per the Gratuity Act, the maximum gratuity amount is ₹20 lakh, and any excess is treated as ex-gratia (not mandatory).
If the last year’s service is more than 1 year and 6 months, it is rounded as 2 years; while 1 year and 4 months is counted as 1 year.

FAQs:

What is 15/26 in gratuity calculation?

15 means the salary of fifteen days for each year of service and 26 are the working days in a month excluding weekly off days.

When is the gratuity paid?

Gratuity is typically paid upon:

Retirement
Resignation
Death
Termination

What is the Gratuity Act?

Payment of Gratuity Act is a law that mandates the payment by employers to employees after retirement for their long-term services. This law also refers to Indian law implemented in 1972 for employees engaged in factories, mines, shops, or establishments with 10 or more workers for their long-term services.

What is dearness allowance?

The short form of dearness allowance is D.A. It is an additional payment to account for inflation. In India, Pakistan, and Bangladesh, D.A. allowance is provided to government servants and retirees to alleviate their financial burden.

What is Ex-Gratia?

Ex-gratia is a voluntary payment made by the employer that exceeds the maximum gratuity limit of 20 lakhs. It is not a legal entitlement.

Resources:

"Centre clears bill to double tax-free gratuity to Rs 20 lakh" Economic Times of Indias

"Payment of Gratuity in India" Chief Labour Commissioner (Central)