Gratuity Calculator

Do You Know If You Are Eligible For A Bonous Or Not?

Discover How Gratuity Works with Rest The Case And Try Our Online Calculator To Learn More!

Gratuity is a payment given to employees when they leave a job after working for a company for a certain number of years, usually five or more. It’s like a reward for their long service. If an employee becomes disabled or faces a serious illness, they can receive this payment even if they haven’t completed the required number of years. The amount of gratuity is based on their most recent salary and how long they worked for the company.

What is a Gratuity Calculator?

When you leave a company, either by retiring or for another reason, you might get a gratuity payment. Not everyone gets this payment; it usually applies to those who have worked for at least five years. If you become disabled due to an accident or illness, you can receive gratuity even If you haven’t worked for five years.

The amount of gratuity you get depends on your final salary and the number of years you worked. If you plan to leave your job or retire, you can use Our Online Gratuity Calculator to estimate how much you might receive.

(15 * your last drawn salary * tenure of working) / 26.

To Be Eligible For Gratuity In India, You Need To Meet These Conditions:

1. You should have reached the age of retirement.
2. You must have completed at least 5 years of continuous service with the company.
3. If you retire, resign, or if you pass away, gratuity will be paid to you or your nominee. If you become disabled due to illness or an accident, you will also be eligible to receive the gratuity.

Organisation Eligible For Gratuity:

Under the Payment of the Gratuity Act of 1972, in India, gratuity applies to employers with ten or more employees. This act covers the following organizations:

1. Factories, mines, oilfields, plantations, ports, or railroads.
2. Any business or establishment that had at least 10 employees on any day during the previous year, as defined by state regulations.
3. Any business or establishment that had at least 10 employees on any day during the previous years, as defined by central regulations.
4. Even if a business initially had fewer than 10 employees, it must provide gratuity once it reaches the required number.

Gratuity Rules 2023 India

The Payment of Gratuity Act of 1972 allows employers to provide gratuity payments to employees who have completed at least five years with the company.

Maximum Amount:

1. For government employees: Up to ₹20 Lakhs.
2. For private employees: Up to ₹10 Lakhs. Any excess is considered ex-gratia.

Rounding Of Service Period: If an employee’s service exceeds 6 months in their final year, it is rounded up to the next year for gratuity calculation. For example, 15 years and 7 months of service is rounded to 16 years.

Income Tax Exemption On Gratuity:

1. Gratuity received up to ₹20 lakhs is exempt from tax.
2. Government employees can get their full gratuity amount without paying any tax.
3. The tax exemption for private sector employees is also up to ₹20 lakhs. Any amount over ₹20 lakhs is taxable.
4. The tax exemption is calculated based on 15 days’ salary for each completed year of service or any part of a year exceeding 6 months.
5. Employees not covered by the Gratuity Act can claim half a month’s average salary (based on the last 10 months) for each completed year of service or part of a year exceeding 6 months. Amounts over ₹20 lakhs are taxable.

In summary, gratuity up to ₹20 lakhs is tax-free, and amounts exceeding this limit are taxed.

What Is The Maximum Gratuity Limit In India?

The maximum gratuity limit in India is ₹20 lakhs, according to the Payment of Gratuity (Amendment) Act, 2018. Before March 29, 2018, the limit was ₹10 lakhs, but it was raised to ₹20 lakhs. This means that if an employee receives a gratuity of up to ₹20 lakhs, it is tax-free under certain conditions. However, any amount over ₹20 lakhs will be treated as salary income and will be taxed.

Gratuity Percentage In India 2023

In India, the Payment of Gratuity Act of 1972 decides how gratuity is paid to employees. The gratuity amount is based on the employee's last salary and how long they have worked for the employer.

Current Rules:

1. Gratuity is calculated as 15 days’ salary for each full year of service or for any part of a year over six months.

The formula for Calculation:

Gratuity = Last Drawn Salary × 15 × Number of Years Of Service / 26

1. Last Drawn Salary: This is the basic salary plus dearness allowance.
2. Number of Years of Service: This includes only the full years worked with the employer.

In short, gratuity is calculated based on your last salary and the total years you've worked, using the formula provided.

Where Can One Invest The Lump Sum Gratuity Amount Received?

1. Fixed Deposits (FDs): One can place the amount in fixed deposits for a set duration and earn a fixed interest rate. FDs are a secure and reliable investment choice with guaranteed returns.
2. Public Provident Fund (PPF): PPF is a long-term investment option that provides tax benefits under section 80C of the Income Tax Act. The investment is safe and backed by the Indian government.
3. Mutual Funds: You can invest in mutual funds managed by professional fund managers. Depending on your risk appetite, mutual funds offer various investment options, such as equity funds, debt funds, and hybrid funds.
4. National Pension System (NPS): The NPS is a pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is a long-term investment option, with returns based on market performance.
5. Real Estate: Investing in real estate is a long-term option that can provide regular rental income and potential capital growth over time.
6. Stocks: One can invest in stocks traded on the stock market. Stock investing is a high-risk, high-reward strategy that requires careful research and understanding.

Gratuity Calculations in Case of Employee's Death

The maximum gratuity in the event of an employee's death is capped at ₹20 lakh and is determined by the length of service.

Example 1:

An employee at XYZ Company has served for 20 years. He earns a monthly salary of ₹15,000/- and has been provided with free housing valued at ₹10,000 and transportation worth ₹5,000. Therefore, his total gratuity would amount to ₹50,000. This amount would be taxed at 30%, resulting in a tax of ₹15,000.

Example 2:

Another employee has been with XYZ Company for ten years. He receives a monthly salary of ₹12,500 and has been provided with free housing valued at ₹2,000 and transportation worth ₹1,000. Therefore, his total gratuity would be ₹30,000. This amount will be taxed at 30%, leading to a tax of ₹9,000.

Types Of Forms Of Gratuity Act

What Are the Taxation Rules for Gratuity?

The tax on gratuity depends on the type of employee:

1. Government Employees:

Gratuity received by central, state, or local government employees is fully exempt from income tax.

2. Other Eligible Employees:

For non-government employees covered under the Payment of Gratuity Act, the least of the following three amounts is exempt from tax:

1. The actual gratuity amount received.
2. ₹20 lakh.
3. The eligible gratuity amount is based on the formula.

Example: If you receive ₹12 lakh as gratuity and your eligible gratuity amount is ₹2,59,615, then ₹2,59,615 is tax-free, and the remaining ₹9,40,385 will be taxed according to your income tax bracket.

Keep in mind that the most tax-free gratuity you can receive during your entire working career is ₹20 lakh.

1. Businesses usually buy group insurance or set aside money in their budget to cover gratuity payments.
2. Unlike the Employee Provident Fund, which includes contributions from both the employee and employer, the employer alone pays the gratuity amount.
3. As per the Payment of Gratuity Act, 1972, a set percentage of your salary is calculated and saved in a gratuity account, which will be paid to you later.
4. Gratuity is a retirement benefit given to employees when they leave the company.
5. The Act applies to all companies with more than ten employees.
6. Gratuity is paid when an employee resigns, retires, is laid off, or opts for voluntary retirement. It's also given in cases of death, disability, or termination.
7. If an employee passes away, the gratuity money is given to their nominee.

New Gratuity Rules For Private Sector Employees

Employers must follow specific guidelines for gratuity payments, which are outlined below:

1. The first rule is that an organization can only pay gratuities if it has 10 or more employees at any point in the previous 12 months. However, even if the employee count drops below 10, the organization is still required to pay gratuities according to the Gratuity Act.
2. An employee must have completed five continuous years of service with the company to be eligible for a gratuity payment. However, this rule does not apply in the event of the employee's death or disability.
3. Gratuity payments can be made if an employee retires, passes away, resigns, is terminated, becomes disabled due to illness or an accident, is laid off due to retrenchment, or opts for the Voluntary Retirement Scheme (VRS).
4. Finally, gratuity payments in India are calculated based on the employee's last drawn salary and the total number of years they have worked for the company.

How Can a Gratuity Calculator Help You?

According to the Payment of Gratuity Act of 1972, you are entitled to receive a specified gratuity amount if:

1. You are nearing retirement age.
2. You have worked for the same company continuously for the last five years.
3. You do not have another full-time employer.

In such situations, an online gratuity calculator in India can be helpful because:

1. It helps you calculate the exact amount owed to you.
2. It saves you from unnecessary expenses and effort.
3. It can be accessed easily from home.
4. It assists in your long-term financial planning.