What is Gratuity?

Gratuity is an amount paid to the employee as a token of appreciation. However, it is payable to only those employees who have served an organisation for 5 or more years. If an employee becomes disabled due to an accident or disease, he/she may receive the gratuity amount before completing 5 years. In this article, let’s understand the eligibility criteria, gratuity calculator online, formula to calculate gratuity, and more.

Eligibility Criteria to Receive Gratuity

Here are the eligibility criteria for receiving gratuity:

 

  • He/she should be an employee earning wages from a company.

  • The employee must have offered continuous service of 5 years at the least.

  • The employee should have resigned or retired.

  • The employee is eligible for superannuation.

What is a Gratuity Calculator?

A gratuity calculator is an online tool that estimates the gratuity amount receivable at the time of retirement or resignation. To calculate gratuity online, you must keep details like last drawn salary (basic + DA) and completed employment period with the organisation handy. The employee gratuity calculator will instantly calculate your gratuity amount.

What is the Formula to Calculate Gratuity?

Let’s understand the gratuity calculator formula 2021.

According to the Payment of Gratuity Act, anyone covered under this Act must use the below formula to calculate gratuity:

 

Gratuity = n*b*15/26

 

Here,

 

  • ‘n’ is equal to the tenor of service rendered to a company

  • ‘b’ is equal to the last drawn basic salary + dearness allowance

 

So, let’s say your last drawn salary is Rs. 1,20,000 and your tenor of service is 10 years. Taking the above formula into consideration, your gratuity is = 1,20,000 x 10 x 15/26

= Rs. 6,92,308

 

Now, the formula to calculate gratuity if an employee is not covered under the Payment of Gratuity Act is (15 x your last drawn salary x the working tenor) / 30.

 

Let’s say your last drawn salary is Rs. 90,000 and your tenor of service is 10 years. Your gratuity is = (15 x 90,000 x 10) / 30

= Rs. 4,50,000

 

Since manual calculations are prone to errors, it is best to make use of the retirement gratuity calculator online.

How to Use the Gratuity Calculator Online?

Here’s how you can calculate gratuity online using this tool:

 

  • Enter your last drawn salary (basic + DA)

  • Enter your tenor of service with the company

The online gratuity calculator will estimate your receivable gratuity within seconds.

Benefits of Using a Gratuity Calculator Online

Here are a few benefits of using an online gratuity calculator:

 

  • Helps you determine the accurate gratuity amount

  • Time-efficient

  • You can use it for free

  • Eliminates the possibility of miscalculation

  • Can be used any time, anywhere

Taxation Rules for Gratuity

If you are an employee who is covered under the Payment of Gratuity Act and working in the private sector needs, the least of the following is exempt from tax:

 

  • Rs. 20 lakh

  • Gratuity received

  • The eligible gratuity

 

The maximum income tax exemption on gratuity is Rs. 20 lakh.

 

Note: Government employees, both State and Central are fully exempt from income tax on gratuity.

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FAQs on Gratuity Calculator

Is an apprentice eligible for gratuity?

No, an apprentice is not entitled to gratuity.

How to calculate gratuity online?

Here’s how to use gratuity amount calculator online:

 

  • Visit our ‘Gratuity Calculator’ page

  • Enter your last drawn pay (basic + DA)

  • Include your tenor of service

 

The calculator will determine the gratuity amount you are entitled to.

What is the formula to calculate gratuity?

The gratuity calculator formula for employees covered under the Payment of Gratuity Act, 1972 is n*b*15/26. However, if you are not covered under this act, the formula is (15 x your last drawn salary x the working tenor) / 30.

When is gratuity taxable?

Income tax exemptions on gratuity are limited to Rs. 20 lakh.

Why should I use a gratuity calculator?

Using a gratuity calculator offers the following benefits:

 

  • Time-efficient

  • Accurate calculation

  • Accessible at any time, anywhere

 

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