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Gratuity Calculator: A Brief Guide

  • Posted By SuperCA
  • On 20 May

Gratuity Calculator: A Brief Guide

What do you understand by Gratuity?

Gratuity is generally referred to the amount of money that an employee receives from his employer in exchange for the services that the employee proffers to the company. This is administered by the Payment of Gratuity Act, 1972. This Act ensures that any employee who has been of service to the company for five or more years should be provided the gratuity amount.

However, this gratuity amount can be accessed by an employee if he/she becomes impaired or disabled due to some accident or disease. The amount of Gratuity basically depends on the last drawn salary of that employee and the years of service the employee has rendered to the company.


Who is eligible for the Payment of Gratuity?

To avail the gratuity, the following requirements must be met by a certain employee:

  • You should be able to avail superannuation.
  • You should have taken retirement from service
  • If you have resigned, then it should be after five years of continuous employment in the organization.
  • If you have passed away then the gratuity will be paid to the nominee assigned and in case of some sort of disablement due to some accident or disease, the gratuity will be provided to you.


What is meant by a Gratuity Calculator?

A gratuity calculator helps you in calculating the gratuity amount by making use of the formula devised for its calculation. The gratuity calculator formula is as follows:

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

A Gratuity calculator can be defined as tool which avails you with an idea of the approximate amount that you will receive if you ever decide to quit your job, after offering five years of continuous employment to the company. It is a simple and easy to use tool that is used to calculate gratuity when you retire from the company.

To use Gratuity calculator, you need to input the value of your last drawn salary and the tenure or the amount of time for which you have continuously rendered your services to the company. The last drawn salary comprises of the basic salary, dearness allowance, and the amount of commission that you have obtained from your sales.


How to calculate Gratuity using the Gratuity calculator Formula?

Type A: If the employer comes under the Gratuity Act, then the gratuity of such employees can be easily calculated by making use of the formula for gratuity calculator i.e.

Gratuity: t*s*15/26


t= tenure of continuous employment in the company

b= Last drawn basic salary+ dearness allowance

For instance, if Mukesh has worked in a Textile Industry for a tenure of 20 years and his last drawn basic salary combined with the dearness allowance was 40,000. Then, the amount of gratuity that he will get is,

Gratuity Amount = (20*40,000*15)/26

                                   = Rs. 4, 61,538

However, while using gratuity calculator following points must be kept in mind.

  • The maximum amount of Gratuity issued by the Gratuity Act is Rs. 20 lakhs. Amount more than the issued amount will be treated as ex-gratia.
  • If your tenure of employment in the last year is in terms of years and months then, the number of months will be rounded off to the nearest figure. For instance, if tenure os employment in 14 years and 9 months then it will be granted the gratuity for 15 years and if the tenure of service is 17 years and 4 months then it will be rounded off to 17 years only.


Type B: For the employees of those employers who does not fall under the Gratuity Act, then the amount of gratuity will be calculated according to the half-month salary on each completed year of employment. The formula for such gratuity calculator is:

Gratuity= [15*(your last drawn salary)*(tenure of working)]/30

For instance, if your basic salary is Rs. 50,000 and you have been of service in the company for 8 years, then the amount of gratuity that you will receive will be:

Gratuity Amount= (15*50,000*8)/30

                                  = Rs. 2, 00, 000



What are the rules of Taxation for Gratuity?

The amount of tax of the amount of gratuity usually varies with the type of employee who is going to receive that gratuity amount.

  • The gratuity amount that a government employee (either local/ state/ central authority) receives is exempt from any sort of income tax.
  • For all the other Private employees who work under an employer who falls under the Payment of Gratuity Act, the least one of the three will be exempt from income tax:
    1. Rs. 20 lakh
    2. The actual gratuity amount received
    3. The eligible gratuity amount

For instance, if you got paid Rs. 12 lakhs as a gratuity by your employer and the amount of gratuity that you are eligible of is Rs. 4, 61, 538. The government has issued Rs. 20 lakh as the maximum tax-free limit. The lowest of all the amounts here is 4, 61, 538 which is going to be exempt of any taxes. Therefore, you have to pay tax on the remaining amount as per the income tax-slab issued for you.