Gratuity Calculator
The Gratuity Calculator is a user-friendly online tool to help employees calculate the gratuity amount they are entitled to after completing their tenure in an organization. It provides detailed insights into the gratuity amount based on the Last Drawn Monthly Salary (Basic + DA), Years of Service, and the applicable gratuity formula.
Calculating gratuity manually can be time-consuming and complex, but an online gratuity calculator simplifies the process, delivering accurate results within seconds. The calculation follows a standard gratuity formula that considers the tenure of service (in years) and the last drawn salary (including basic pay, dearness allowance, and eligible commission).
Since the gratuity amount varies depending on individual pay scales and service length, the calculator provides a personalized and detailed calculation. By using this tool, employees can plan their financial future more effectively, ensuring clarity and peace of mind.
What is Gratuity?
Gratuity is a lump sum payment provided by a company to its employees as a gesture of appreciation for their service. It serves as a form of social security benefit, offered when employees retire, resign, or are laid off after completing five years of continuous service. This payment is intended to offer financial support to employees as they transition out of the organization. In certain cases, such as disability caused by an accident or illness, employees may become eligible for gratuity even if they have not completed five years of service.
The Payment of Gratuity Act, 1972, outlines the rules and regulations governing gratuity in India.
Eligibility for Gratuity
Employees who meet the following criteria are eligible to receive gratuity:
- The individual has reached superannuation age. (The superannuation age refers to the age at which an employee is expected to retire from active service as per the organization’s employment policies or government regulations. )
- The individual has resigned from the job after completing five years of continuous service.
- In cases of death or disablement due to an accident or illness, the five-year requirement is waived.
- In the event of the employee’s death, the nominee or legal beneficiary is entitled to receive the gratuity amount.
Taxation Rules for Gratuity
Gratuity is considered taxable income, but tax exemptions are available under the Income Tax Act. The taxability and exemptions depend on factors such as the employee’s category and the employer’s coverage under the Gratuity Act, 1972.
For Government Employees: Gratuity is fully exempt from tax.
For Non-Government Employees Covered under the Gratuity Act: Tax exemption is available on the least of the following:
- The maximum limit of ₹20 lakh (updated from ₹10 lakh by the Government).
- Last Drawn Basic Salary x Years of Service x 15/26.
- Actual Gratuity Received.
For Employees Not Covered under the Gratuity Act: Tax exemption applies to the lesser of:
- Half Month’s Average Salary x Completed Years of Service.
- A maximum of ₹20 lakh gratuity.
- Full Gratuity Amount received.
Payment of Gratuity
Gratuity is a lump sum amount given to employees upon their retirement or termination, provided they have completed at least five continuous years of service.
Although the Government does not set a specific amount for gratuity payment, the following factors are usually considered:
- Last Salary (monthly or basic) at the time of resignation or termination.
- Years of Service with the employer.
Organizations Eligible for Gratuity
The Payment of Gratuity Act, 1972 applies to employers with 10 or more employees. Covered organizations include:
- Factories, mines, oilfields, plantations, ports, and railway companies.
- Shops or establishments employing 10 or more people in the previous 12 months (as specified by state or central governments).
- Employers whose employee count has fallen below 10 after becoming eligible for the act.
Gratuity Amount Investment Options
Once you receive your gratuity amount, consider various investment options based on your financial goals, risk tolerance, and investment horizon. Here are some popular options:
- Fixed Deposits (FDs): Low-risk investments with guaranteed returns. Ideal for those prioritizing safety.
- Public Provident Fund (PPF): A tax-efficient, long-term investment with a lock-in period of 15 years. Suitable for retirement savings.
- Employee Provident Fund (EPF): Transfer gratuity funds to your EPF account for safety and tax benefits.
- National Pension System (NPS): A voluntary, long-term retirement savings plan offering tax benefits with a mix of equity and debt investments.
- Equity Mutual Funds: Potentially high returns from stocks, suitable for long-term investors with higher risk tolerance.
- Debt Mutual Funds: Stable returns from fixed-income securities with lower risk.
- Sovereign Gold Bonds (SGBs): Invest in gold in paper form, offering tax benefits and a fixed interest rate.
- Real Estate: Investing in property or through Real Estate Investment Trusts (REITs).
- Stock Market: Direct investment in stocks for those with a good understanding of the market and risk tolerance.
- Bank Recurring Deposits (RDs): Regular savings plans for individuals preferring to invest a fixed amount monthly.
Manual Method to Determine Gratuity Amount
The employee’s period of service plays a key role in calculating the gratuity amount. For instance, if Mr. Rahul has worked for 12 years and 8 months, his service tenure will be rounded off to 12 years, as any duration above 6 months is rounded to the next year. However, if Mr. Suresh has worked for 16 years and 4 months, his service tenure will remain at 16 years. Once the tenure is determined, the gratuity amount can be easily calculated.
Before diving into the gratuity calculation formula, it’s important to understand that employers are categorized into two types based on their coverage under the Gratuity Act, 1972. These types are as follows:
Type 1: Employers covered under the Act (with 10 or more employees)
- For Type 1: Gratuity = 15 x Last Drawn Salary x Years of Service / 26
Type 2: Employers not covered under the Act
- For Type 2: Gratuity = 15 x Last Drawn Salary x Years of Service / 30
However, this gratuity calculator is only for Employers Covered Under the Gratuity Act (with 10 or more employees).
In such cases, the gratuity amount can be calculated using the following formula:
Gratuity = 15 x Last Drawn Salary x Years of Service / 26
Example: Let’s assume that the employee, Mr. Rajesh, has worked for 7 years, and his last drawn salary (including dearness allowance) is ₹1,20,000. The gratuity calculation will be:
Gratuity = 15 x 7 x ₹1,20,000 / 26 = ₹4,38,462
How to Use Gratuity Calculator
To use the Gratuity Calculator, follow these steps:
1. Enter the Monthly Salary: Monthly Salary refers to the last drawn monthly salary, which includes both Basic Salary and Dearness Allowance (DA).
2. Enter the Years of Service: Years of Service refers to the total number of years an employee has worked for the employer. It is a key factor in determining the gratuity amount. The minimum required service for gratuity calculation is typically 5 years. If an employee has worked for less than 5 years, they may not be eligible for gratuity under the Gratuity Act, 1972. If an employee’s service tenure includes months exceeding 6 months, the period is rounded up to the next year. For example, if someone has worked for 6 years and 8 months, the tenure will be considered as 7 years.
3. View the Results: After entering the Monthly Salary and Years of Service, the calculator will automatically display the following results:
Gratuity amount: The Gratuity Amount is the amount an employee is entitled to receive upon leaving the organization after fulfilling the necessary service requirements.
Additional Features of the Gratuity Calculator
The Gratuity Calculator comes with several user-friendly features designed to improve your experience and provide a detailed breakdown of its functionalities. Below are the key features:
Feature 1: Input Methods
You can enter the Monthly Salary, and Years of Service, either using the keyboard or the scroll bar for convenience.
Input Limits:
- Monthly Salary: More than 10,000.
- Years of Service: 5 to 50.
Feature 2: Numbers Format Checkbox
A checkbox labeled ‘Numbers Format’ appears when you click the minus symbol (⛔) in the top-right corner of the calculator.
- When checked: All numbers in the calculator will be displayed in the Indian number format (e.g., ₹1,00,000).
- When unchecked: Numbers will be displayed in the International number format (e.g., ₹100,000).
Feature 2: Numbers in Words
1. Hover to View Numbers in Words: When you hover your mouse over any result section (such as Gratuity Amount), the number will also be displayed in words.
- Indian Format: If the ‘Numbers Format’ checkbox is checked, numbers will appear in words following the Indian system (e.g., ₹10,00,000 will be shown as “10 Lakh”).
- International Format: If the ‘Numbers Format’ checkbox is unchecked, numbers will follow the International system (e.g., ₹1,000,000 will be displayed as “1 Million”).
2. Real-Time Conversion: As you enter values or adjust the amount using the scrollbar in the ‘Monthly Salary’ fields, the corresponding number will automatically displayed in words. (similar to the hover functionality.)
Note: Numbers in Words will appear in the center of the page as a tooltip and remain visible for 15 seconds only.
This feature makes the results more readable and helps you understand the figures better by seeing them in both numeric and word formats.
How Can a Gratuity Calculator Assist You?
A Gratuity Calculator is a useful tool for determining the exact amount of gratuity that an employer owes you based on your years of service to the company. Here are some key benefits of using the calculator:
- Saves Time: It eliminates the need for manual calculations, making the process much easier and quicker.
- Flexibility: You can check the gratuity amount multiple times and experiment with different salary and service tenure combinations.
- Financial Planning: It helps in estimating your future financial benefits, which can aid in planning your financial goals.
Conclusion: Our Gratuity Calculator will simplify your calculations and ensure accuracy.
My Request to All: If you enjoy using my Gratuity Calculator and website, please consider sharing the link to this page or the website with your friends. Additionally, if you have any requests, complaints, suggestions, or feedback, feel free to reach out via our WhatsApp channel or Telegram group.
