Gratuity Calculator

Calculate the gratuity with basic and number of years in service 

What is Gratuity?

Gratuity is a benefit received by an employee for services rendered to an organisation. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer. An employee gets gratuity when he/she resigns, retires or is laid off. In case of death or disablement there is no minimum eligibility period. 

How Gratuity is Calculated

Calculating the amount of gratuity payable

It mostly depends on the Payment of Gratuity Act of 1972. The Act does not apply to every employee.

  1. Employees who are not covered by the Act:

      (15 * average Salary* Employment Period) / 30 = Gratuity Amount

       Basic pay, dearness allowance, and any sales commission are all included in the salary.

        For this computation, the average of the last 10 months’ salary will be used. The number of working days in a month is 30 in this case.

2. Employees covered by the Act:

     Gratuity amount = (15 *   last drawn salary * tenure of working) / 26

     Basic pay, dearness allowance, and any sales commission are all included in the last drawn salary. The number of working days in a month is considered to be 26 in this case.

Gratuity forfeiture

  1. If an employee is fired for any conduct, deliberate omission, or negligence that causes damage or loss to, or destruction of, the employer’s property, the employer is entitled to forfeit the amount of gratuity due to the employee, but only to the extent of the damage.
  2. If the termination is due to the employee’s disruptive behavior, the employer has the option of forfeiting all or part of the gratuity.
  3. If the employee was fired for any act involving moral turpitude, as long as the act was committed while he was employed.

Gratuity is Taxable

  1. The taxability of any income is a serious concern. Is the gratuity tax deductible? It is dependent on the employee’s classification.
  2. Gratuity is exempt up to a maximum of Rs.20,00,000 for employees covered by the Act.
  3. Actual Gratuity received is(15 * last drawn salary * tenure of working) / 26
  4. Gratuity is exempt up to a maximum of Rs.10,000 for employees who are not covered by the Act. Actual Gratuity received  is (15 * Average Salary * Period of Employment)/ 30
  5. For central/state government, defense, and local government authorities any amount of gratuity received is tax-free.

For example, the last drawn salary (basic plus DA) of Mr. Ashish, for example, is Rs. 60,000 (per month) and he has worked for 25 years. The gratuity according to the formula is Rs. 8.65 lakh but suppose he has received a gratuity of Rs. 12 lakh.

So for income tax calculation, Rs. 8.65 lakh will be considered for exemption. So Mr. Ashish will pay tax on Rs. 3.35 lakh (Rs. 12 lakh – 8.65 lakh).

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