Gratuity Calculator

The sum of money that a corporation pays its employee at the end of their service is referred to as gratuity. The gratuity sum, however, is only granted to employees who have worked for the business for five years or longer. The 1972 Payment of Gratuity Act controls it.

If an employee becomes handicapped in an accident or due to a disease, they are eligible to receive their gratuity before the five-year mark. The amount for gratuity calculation in India is primarily based on your most recent income and the number of years you have worked for the company.

The gratuity amount can be determined with the gratuity calculation formula,

Gratuity (G) = N * B * 15/26

G = Gratuity Amount

N = The number of completed years in the organization

B = As of the last month's basic salary (plus dearness allowance, any commissions received from sales)

Eg 1: For Employees covered under the Act:

No. of years an employee works in an organisation = 15 years
His last drawn basic + dearness allowance = ₹30,000
Therefor Gratuity = 15 x 30,000 x 15/26 = ₹2,59,615.38

Eg 2: For Employees not covered under the Gratuity Act:

The employees would still receive the gratuity amount even if the organisation was not covered by the Gratuity Act. However, the days will be increased from 26 to 30.

The Gratuity calculation formula is:

Gratuity = (15 × last drawn salary × working tenure)/30

If you have worked for a company for seven years, the organisation is not covered under the Gratuity Act. And your basic salary was ₹35,000.

Gratuity Amount = (15 × 35,000 × 7) / 30 = 1,22,500.

According to the Payment of Gratuity Act of 1972, the gratuity eligibilty in India is employers with ten or more employees. The following organisations are protected by the act:

• Every business, whether it be a factory, mine, oilfield, plantation, port, or railroad

• Every business or establishment within the meaning of the law where there were at least 10 employees on any given day during the previous year (as State Govt specify)

• Every business or establishment within the meaning of the law where there were at least 10 employees on any given day during the previous year (as Central Govt specify)

• Any business or facility covered by the Gratuity Act with fewer than 10 employees after becoming qualified.

The Payment of Gratuity Act of 1972 gives employers the option of giving up their gratuity payments. The person has completed at least five years of employment with the organisation. There are several gratuity regulations. Let's examine each of the gratuity regulations individually.

The threshold for the maximum gratuity amount has been lifted from the previous limit of ₹10 lakhs to ₹20 lakhs in the most recent publication of the Government of India's interim budget for the year 2019. The PSU employees and those who are not protected by the Payment of Gratuity Act will benefit from this rule, which took effect on March 29, 2018.

Only for government employees is the maximum limit for gratuity increased; for non-government employees, the law remains the same, i.e; The gratuity sum can never exceed ₹10 lakhs. Ex-gratia is the term for any gratuity overage.

If there are more than six months in the final month of a person's employment year, the number is rounded up to the next number. A person would receive the gratuity of 16 years, for instance, if their service period was 15 years and 7 months. However, if it ends up being 15 years and 4 months, the employee will receive a 15-year gratuity.

As per the Income Tax Act, gratuity received by an employee is taxable as income under the head ‘Income from Salary’. Some of the tax exemptions available for gratuity is as follows :

• The maximum exemption limit for gratuity is ₹20 lakhs

• This limit was increased from ₹10 lakhs to ₹20 lakhs with effect from 29 March 2018.

The tax exemption is provided under Section 10(10) of the Income Tax Act, 1961. As per the section the following gratuity amount or exempt from income tax:

• 15 days' salary (based on the last drawn salary) for each completed year of service, or part thereof in excess of six months

• Any gratuity amount in excess of the above limit of ₹20 lakhs will be taxable as income under the head ‘Income from Salary’

Gratuity received by employees not covered under the Payment of Gratuity Act, 1972 includes:

• Half month's average salary (based on the last ten months' average) for each completed year of service, or part thereof in excess of six months

• Any gratuity amount in excess of the above limit of ₹20 lakhs will be taxable as income under the head ‘Income from Salary’.

The Payment of Gratuity Act, 1972 governs the payment of gratuity to employees in India. As per the Act, gratuity is calculated as a percentage of the employee's last drawn salary and the length of their continuous service with the employer. The current gratuity percentage in India is 15 days of the employee's last drawn salary for each completed year of service or part thereof in excess of six months.

The gratuity amount calculation can be done using the following gratuity formula:

Gratuity = (Last drawn salary x 15 x number of years of service) / 26

Here, ‘last drawn salary’ refers to the basic salary plus dearness allowance and ‘number of years of service’ refers to the completed years of service with the employer.

The maximum reward in the event of an employee's death will be limited at ₹20 lakh and would be depending on the length of service provided.

Example 1: A worker for XYZ Company has been there for 20 years. He is paid a monthly salary of ₹15,000/-. He had been given free housing for ₹10,000 and transportation worth ₹5,000 during this time. Therefore, his total gratuity would be ₹50000. This sum should be subject to a 30% tax, or ₹15,000.00.

Example 2: Someone has worked with XYZ company for ten years. He is paid a salary of ₹12,500 each month. During this time, he had been provided with free housing worth ₹2000 and free transportation worth ₹1000. Therefore, his total gratuities would be ₹30,000. This sum will be subject to a 30% tax, or ₹9000.