Gratuity Calculator

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. In this case, we consider the number of working days in a month to be 26.

Gratuity Forfeiture

• Suppose the employer terminates an employee due to any conduct, deliberate omission, or negligence resulting in damage, loss, or destruction of the employer’s property. In that case, the employer holds the authority to withhold the amount of gratuity owed to the employee. However, this right’s extent of the incurred damage restricts this authority.
• If the termination is due to the employee’s disruptive behavior, the employer has the option of forfeiting all or part of the gratuity.
• 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

• The taxability of any income is a serious concern. Is the gratuity tax deductible? It is dependent on the employee’s classification.
• Gratuity is exempt up to a maximum of Rs.20,00,000 for employees covered by the Act.
• We calculate the actual received gratuity as (15 * last drawn salary * working tenure) / 26.
• 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
• 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 lakhs but suppose he has received a gratuity of Rs. 12 lakhs.

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 lakhs – 8.65 lakhs).