Gratuity Calculator
Gratuity Calculator (India)
What is Gratuity: -
Gratuity is the lump sum amount paid by the employer to their employee for their long-term services of 5 years or more. To earn the Gratuity, the Employee must complete a minimum of 5 years of Service in the organization. Gratuity comes under the retirement benefit given by the Employer to their employees. Gratuity is the reward an Employee receives for their dedicated service to the organization for a long period. The employer shows gratitude towards the employee by paying Gratuity.
Payment of Gratuity is done as per the Payment of Gratuity Act 1972. As per this act, the Employer must pay gratuity to the employee if he completes more than 5 years of continuous service in the organization.
Eligibility Criteria for Gratuity.
Employees are eligible to receive the Gratuity in the following cases.
1. The Employee should be retired from service
2. The Employee Should be eligible for superannuation
3. The employee should have completed 5 years of service before resigning.
4. If the Employee passes away or suffers disability due to illness or accident.
How the Gratuity is calculated –
Gratuity Calculation.
Gratuity is calculated as prescribed under the Payment of Gratuity Act, 1972. Under this act, any establishment or organization employing 10 or more employees should pay gratuity to their employees.
Gratuity Formula
The following formula is used to calculate the gratuity of Employees
- Gratuity = Last Drawn Salary x (15/26) x Number of years of Service
- Last Drawn Salary = Basic Salary + DA…
- 15/26 indicates working days.
Example :
We will take the following example to understand the calculation of the Gratuity of an Employee. Suppose Mr Ramesh has worked in INFOSYS for 10 years. And his last basic salary is 90,000=00. Now he has retired from service. We have to find out the Gratuity paid to him by INFOSYS.
The formula below will be applicable.
Gratuity = Last Drawn Salary x (15/26) x Number of years of Service
Gratuity = 90,000=00 x (15 / 26) x 10
Gratuity = Rs. 5,18,400=00
In Case of the Death of an Employee, the following charts will be applicable.
| Employment Period | Gratuity Amount |
| Less than 1 Year | Two times the Employee’s Basic Salary |
| More than 1 year but less than 5 Years | Six times the Employee’s Basic Salary |
| More than 5 Years but less than 11 Years | Twelve times the Employee’s Basic Salary |
| More than 11 Years but less than 20 Years | Twenty times the Employee’s Basic Salary |
| 20 Years or More | Half the basic salary for each completed six months (Subject to a maximum of 22 Times the employee’s basic salary |
Is Gratuity Taxable?
1. If the Employee receives Gratuity during his service, it is fully Taxable as Income in his hands under the Income Tax Act 1961.
If Gratuity is received after death, retirement, or resignation, the Tax Exemption is provided as below.
1. Gratuity given to employees working in the Government Sector is fully exempted from Income Tax.
2. For Private Sector Employees working in an Organization that is covered under the Payment of Gratuity Act, 1972 (i.e., Employee Number 10 or More), then Gratuity Amount up to 20 Lakhs is exempted from Income Tax.
3. For Private Sector Employees working in an Organization that is not covered under the Payment of Gratuity Act, 1972 (i.e. Employee Number less than 10), then the Gratuity Amount up to 10 Lakhs is exempted from Income Tax.
FAQs about Gratuity Calculation in India
1. What is gratuity?
Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for their services. It is given at the time of resignation, retirement, or death. It is governed by the Payment of Gratuity Act, 1972, in India.
2. Who is eligible for gratuity?
An employee is eligible for gratuity if:
- They have completed at least 5 years of continuous service with the same employer.
- The rule of 5 years is not applicable in case of death or disablement.
3. How is gratuity calculated?
The formula for calculation of gratuity under the Payment of Gratuity Act is:
Gratuity = (Last drawn basic salary + DA) × 15/26 × Number of completed years of service
- 15 is the number of days for every year of service.
- 26 represents the number of working days in a month.
4. Is gratuity applicable to all employees?
Gratuity applies to:
- Employees working in companies with 10 or more employees.
- Both private and public sector employees are covered.
- Government employees have a different structure under the Central Civil Services rules.
5. Is there an online gratuity calculator available?
Yes, several websites and employer HR portals provide online gratuity calculators. You can also embed a custom calculator in your blog for ease of use.
6. What is the difference between gratuity and provident fund (PF)?
- Gratuity is a lump-sum benefit paid by the employer after 5 years of service.
- PF is a retirement fund contributed by both employee and employer every month.
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