Gratuity refers to the amount
that an employer pays his employee, in return for services offered by him to
the company. However, only those employees who have been employed by the
company for five years or more are given the gratuity amount. It is governed by
the Payment of Gratuity Act, 1972.
The employee can get the gratuity
before five years if he/she gets disabled in an accident or due to a disease.
Gratuity mainly depends on your last drawn salary and the years of service
which are rendered to the Company.
Criteria for Payment of Gratuity?
To receive the gratuity, you must
meet the following eligibility criteria:
eligible for superannuation.
have retired from service.
have resigned after continuous employment of five years with the company.
your death the gratuity is paid to the nominee, or to you on disablement on
account of a sickness or an accident.
What is a Gratuity Calculator?
The Gratuity Calculator would
calculate the gratuity amount based on the formula for calculating the
(15 * your last drawn salary *
A gratuity calculator is a tool
which gives you an estimate of the amount that you would receive, on quitting
the job, after rendering a continuous five years of service. It is a handy tool
to calculate the gratuity on retirement from the company.
You must enter the inputs of the
last drawn salary and the tenure of continuous service with the company. The
last drawn salary includes your basic salary, the dearness allowance, and the
commission that you have received from sales.
The gratuity calculator would
show you the gratuity figure in seconds. It is simple to use and can be used
Gratuity Calculation – What is
the Formula for Calculating the Gratuity?
The amount of gratuity for
employees whose employer is covered under the Gratuity Act can be calculated
Tenure of service completed in the company
drawn basic salary + dearness allowance
you have worked with the XYZ company for a period of 15 years. Your last drawn
basic salary along with dearness allowance was Rs 30,000. Hence:
gratuity = 15 * 30,000 * 15 / 26 = Rs 2,59,615
Two points must be noted here:
Gratuity Act, the amount of gratuity cannot be more than Rs 20 lakh. Any
excesses would be treated as ex-gratia.
of years you have worked in the last year of employment is more than six
months, then it will be rounded to the nearest figure. Suppose your tenure of
service is 16 years 7 months, then you receive the gratuity for 17 years.
Otherwise, it’s for 16 years if it happens to be 16 years 4 months.
whose employer is not covered under the Gratuity Act, the gratuity amount would
be calculated as per the half-month salary on each completed year of service.
is: (15 * Your last drawn salary * the working tenure) / 30.
you have a basic salary of Rs 30,000. You have rendered continuous service of 7
years and the employer is not covered under the Gratuity Act.
= (15 * 30,000 * 7) / 30 = Rs 1,05,000.
What are the Taxation Rules
treatment of the gratuity amount depends on the type of employee who has to
gratuity received by any government employee (whether central/state/local
authority) is exempt from the income tax.
eligible private employee whose employer is covered under the Payment of
Gratuity Act. Here, the least of the following three amounts will be exempt
margin-left:18.0pt;text-align:justify">Rs 20 lakh.
margin-left:18.0pt;text-align:justify">The actual amount of gratuity received.
margin-left:18.0pt;text-align:justify">The eligible gratuity.
your employer had paid you a gratuity of Rs 12 lakh. As per the gratuity
calculation in the earlier example, you are eligible for a gratuity amount of
Rs 2,59,615. The government has set Rs 20 lakh as the upper tax-free limit. The
lowest of the three figures is Rs 2,59,615, which is exempt from tax. You must
pay tax on the remaining amount of Rs 9,40,385 as per your income tax slab.
your entire working life, the maximum tax-exempt gratuity amount you may claim,
cannot go beyond Rs 20 lakh.