Gratuity Calculator Guide
What is a Gratuity Calculator?
A Gratuity Calculator is a financial tool that helps employees, employers, and
HR professionals estimate the gratuity amount payable based on factors such as monthly salary and
years of service. Gratuity is a lump sum payment made by employers to employees as a token of
appreciation for their long-term service, usually upon retirement, resignation, or in the event of
death or disability.
How Does the Gratuity Calculator Work?
The Gratuity Calculator uses the following formula:
Gratuity = (Last Drawn Salary × Number of Years of Service × 15) ÷
26
Where:
- Last Drawn Salary = Basic Salary + Dearness
Allowance (DA)
- Number of Years of Service = Total
completed years of service (rounded down to the nearest year)
Example Calculation
Suppose an employee's last drawn salary is ₹60,000 and they have completed 20
years of service:
- Last Drawn Salary = ₹60,000
- Number of Years of Service = 20
Gratuity = (60,000 × 20 × 15) ÷ 26 = ₹6,92,307.69
Eligibility Criteria for Gratuity
To be eligible for gratuity benefits under the Payment of
Gratuity Act, 1972, an employee must meet the following
conditions:
- The employee should have completed at least 5
years of continuous service.
- Gratuity is payable upon retirement,
resignation, or termination.
- In case of death or permanent
disability, gratuity is paid to the employee or their nominee,
even if the employee has not completed 5 years of service.
Tax Implications on Gratuity
Taxation on gratuity depends on the type of employer:
- Government Employees: Gratuity is
fully exempt from income tax.
- Non-Government Employees:
- Gratuity is tax-exempt up to ₹20
lakh during a lifetime.
- Any amount exceeding ₹20 lakh is taxable under
Income from Other Sources as per applicable income
tax slabs.
Benefits of Using a Gratuity Calculator
- Accurate Estimation: Helps employees
estimate their gratuity benefits based on tenure and salary.
- Retirement Planning: Enables better
financial planning by providing clarity on post-retirement payouts.
- HR & Payroll Management: Assists HR
professionals in computing accurate employee benefits for financial planning.
Frequently Asked Questions (FAQs)
- How is gratuity calculated in India?
Gratuity is calculated using the formula: (Last Drawn Salary × Number of
Years of Service × 15) ÷ 26.
- Is gratuity taxable in India?
Gratuity is tax-free up to ₹20 lakh for non-government employees and fully exempt
for government employees.
- Can an employee receive gratuity before completing 5
years?
Yes, gratuity can be paid before
completing 5 years of service only in case of death or permanent disability.
- What happens if an employee resigns before completing 5
years?
If an employee resigns before
completing 5 years (without death or disability), they are not eligible for gratuity.
- Is gratuity applicable to contractual
employees?
No, gratuity is only applicable
to permanent employees who have completed at least 5 years of service under the employer.
