Discover the convenience of calculating gratuity online. Explore gratuity exemptions, gratuity eligibility, and the rules governing gratuity. Utilize Vakilsearch’s free gratuity calculator to accurately determine gratuity amounts.
Calculate Gratuity Online
Did you know that gratuity bonus calculation is now as easy as ever? Well, before we get into the details of how to calculate gratuity instantly online, let’s understand what gratuity is.
Gratuity Calculation – Overview
Gratuity is a significant component of employee benefits and is an essential part of the payroll process. It is a statutory benefit provided to employees upon retirement or resignation. The calculation of gratuity involves considering the employee’s service tenure and the last drawn salary. Understanding the tax implications of gratuity is crucial for both employers and employees.
What is Gratuity?
Gratuity is a sum of money paid by an employer to an employee in recognition of the employee’s long service. It is an additional retirement benefit provided to employees in the private sector. The gratuity amount is calculated based on the employee’s tenure of service and the last drawn salary.
How to Calculate Gratuity Amount?
The gratuity amount is calculated using a specific formula that considers the employee’s salary and the duration of their service. The formula for calculating gratuity involves the employer’s contribution and is based on the provisions of the Payment of Gratuity Act.
Employers can use this free Gratuity Calculator tool to accurately determine the gratuity amount owed to an employee.
Formula for Gratuity Calculation
The formula for calculating gratuity is as follows:
Gratuity = (15 * last drawn salary * tenure of working) / 26
Where:
- Last drawn salary includes basic salary and dearness allowance
- Tenure of working refers to the number of years of service
Benefits of Using a Calculator to Calculate Gratuity Instantly Online:
Here are a few advantages of using an online gratuity calculator –
- Gratuity Calculator is quick and straightforward. Being available online, it can be used at convenience
- This comprehensive and easy-to-use tool helps for calculating gratuity enabling smooth financial planning for both the employer and employees. This can help you create a budget before receiving the actual amount in hand
- Online Gratuity Calculator makes the calculation process of Gratuity a lot more transparent and easier to comprehend. At the same time, you can create proper documentation depending on the financial incentive you receive post-retirement.
Things To Consider While Calculating Your Gratuity With an Online Gratuity Calculator
Now, before you try your hands on calculating with the online gratuity calculator, there are certain factors that you need to consider. Keep reading below to know more about them.
- The employee has to work for the organisation for a minimum of 5 years without any service break in between to claim Gratuity. While declaring the employee’s gross salary, most companies include the Gratuity payment. However, a company will be responsible to pay this amount, if and only if, the employee has been working for their organisation for at least five years. Only after completing 5 years of continuous work can an employee claim this amount.
- For calculating the number of years of service, if an employee has worked for more than 6 months of any particular year, then it will be included, and if they have worked for less than six months, the employer will consider the same while calculating the net payable amount.
For example, if the person has been working for six years or seven months, his years of service will be considered seven years. And, if he has contributed six years and five months, he will be deemed to have worked only for six years during the Gratuity payment calculation.
- The gratuity lumpsum that an employee will receive cannot exceed ₹ 10,00,000. More than ₹10,00,000 will be considered part of Ex- gratia or Bonus.
For example, an employer is free to offer higher than this amount to any employee; however, Gratuity Act 1972 has specified that this amount must be less than ₹10 Lakhs. Any amount higher than ₹10 lakhs will be considered ex-gratia or bonus. Ex-gratia or bonus is not a mandatory contribution imposed by the law; instead, it is a voluntary contribution that an organization may like to bear to reward its employees as a token of appreciation for their service.
- For a Gratuity amount of more than ₹2,00,000, the employee is liable to pay tax. Under the Income Tax Act, Gratuity payment up to ₹2,000,000 is exempted from taxation. However, any amount exceeding that limit will be examined during income tax calculation.
- If an employee is there in an organization for 5 years or more; and has received multiple Gratuity payments during their working years, for computing taxable amount, the cumulative amount of Gratuity will be considered for computing taxable amount. The employee is liable to pay tax if the cumulative Gratuity is higher than ₹2,000,000. After the deduction of ₹2,000,000, the rest of the cumulative Gratuity will be taxable.
- While calculating the net amount of Gratuity, Online Gratuity Calculator uses the formula applicable for both central government and private firm employees. The Pension Gratuity and salary gratuity both come under the same bracket while calculating the net Gratuity amount.
Thus, Online Gratuity Calculator is the easiest way to calculate the lump sum amount that an employee will receive after the completion of 5 years or more of their service for any particular organization.
Understanding What is 15/26 in Gratuity Calculation?
The formula to Calculate Gratuity Instantly Online is:
Gratuity = (Dearness Allowance + Last Drawn Basic Salary) * 15/26* the number of years of work.
For example, suppose an employee’s last drawn basic salary, including the DA (Dearness Allowance), is ₹30000 and they have worked for the organization for 10 years. In that case, the minimum amount they are entitled to receive as Gratuity will be:
Conclusion: Calculate Gratuity Instantly Online
Calculating the amount of gratuity that you are entitled to earn is simple. It can be done with an online tool, as explained above. However, it depends on several aspects, such as the tenure of service you have completed or the basic salary you had last drawn.
The Year of retirement is also important, as this can determine the term of service completion. Hence, follow the points mentioned above to calculate the gratuity you are entitled to quickly.
FAQs – Calculate Gratuity Online
No, an employee cannot waive their right to gratuity as it is a statutory benefit provided under the Payment of Gratuity Act, 1972.
Can an employee receive gratuity if they are terminated?
Yes, an employee is eligible to receive gratuity if they are terminated, provided they have completed at least five years of continuous service.
What if an employee does not complete five years of service?
If an employee does not complete five years of service, they are not eligible for gratuity unless the termination is due to death or disability.
Is there a maximum limit on gratuity payout?
Yes, the maximum limit on gratuity payout is ₹20 lakhs, as per the Payment of Gratuity Act, 1972. Any amount above this limit is considered an ex-gratia payment.
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