Gratuity Calculator - Calculate Gratuity Online 

Gratuity Calculator: Know the eligibility criteria, calculation formula and more

In simple terms, gratuity is a token of appreciation, a way to express gratitude for an employee's long-term commitment. Governed by the Payment of Gratuity Act, 1972, this legislation provides details regarding when an employee is entitled to gratuity, how the same is calculated and the employers' responsibility in ensuring its timely disbursement. A gratuity calculator can be used to determine the total amount of money your organisation owes. The gratuity payments are controlled by the laws and completely depend upon the last drawn salary as well as the years of service of an individual

What is gratuity?

It is a financial acknowledgement that an employer provides for an employee's service to the company, and is especially reserved for those who have completed a minimum of five years with the organisation. It is a type of social security benefit the employers provide employees at the time of their retirement, resignation or in case they are laid off after completing five years with the company.

However, the employee is also eligible to get the gratuity amount before the completion of five years in the case of disability due to an accident or a disease.

The Payment of Gratuity Act, 1972, which governs the rules and regulations related to gratuity in India, has established its framework. It applies to all the sectors, including, government departments, defence, local governing entities as well as certain private institutions and organisations that meet predefined conditions.

Eligibility criteria

Those who fulfil the following criteria are eligible to receive gratuity:

1. Individuals must be eligible for superannuation.

2. Must have left the job after working for five years in continuation.

3. An exception is made to this five-year criterion in case of the death or disablement due to accident or disease of the full-time employees.

4. At the time of the death of the employee, the nominee or beneficiary becomes eligible to receive the gratuity amount.

The condition of five continuous years of service has exceptions for periods of absence due to accidents, leaves, and layoffs, among others.

Gratuity is payable to employees not only at the time of retirement but also in various other situations like superannuation, retrenchment, voluntary retirement, resignation, death or disablement, and termination (without the fault of the employee) among others.

Taxation rules

While the gratuity amount is taxable, the government has provided certain tax exemptions under the Income Tax Act. At the time of filing the income tax return (ITR), the taxable gratuity amount is considered as the 'income from salary.’

The tax exemption rules differ from employee to employee based on the category of the employer and the company's coverage under the Gratuity Act.

Those who are government employees are eligible to avail full tax exemptions on the entire gratuity amount, as per reports.

The non-government employees covered under the Gratuity Act can avail of tax exemption based on the minimum of the following:

1. ₹20 lakh limit: This is the maximum limit notified by the Centre, amended from the earlier ₹10 lakh).

2. Using the formula: Last drawn basic salary multiplied by numbers of years of service multiplied by 15/26.

3. Actual gratuity received.

In case your employer does not provide cover under the Gratuity Act, then you can avail tax exemption on whichever is the least:

1. The average salary of half a month X total completed years of service.

2. Maximum up to ₹20 Lakh gratuity.

3. Entire gratuity amount received.

Employers having 10 or more employees are eligible under the Payment of Gratuity Act, 1972.

Understanding gratuity calculator

You may prefer using a gratuity calculator to find out how much gratuity you are entitled to. With the help of this estimated amount, users can plan their financial objectives, such as retirement, or pay for other significant expenses in advance. It is a tedious process to calculate the gratuity amount manually. Hence, the calculator provides you with an easy option to estimate this sum.

To determine the employee's gratuity the employer uses a standard gratuity formula. For the same, various factors are taken into consideration like the years of service and the most recent salary. The gratuity amount varies from one individual to another as the pay scale of every employee is different from others.

The gratuity calculator gives in detail the gratuity amount in the least possible time frame.

Why use a gratuity calculator

The gratuity calculator provides the opportunity to determine the exact amount the employer owes you for your service. Besides saving the hassle of manual calculation, it also helps you to plan your financial goals.

As the gratuity calculator is completely free of cost, users are advised to check the gratuity amount as many times as they want, by using multiple combinations.

An online gratuity calculator helps you ascertain the precise amount due to you, while people can use it from the comfort of their homes. Further, it helps you with long-term financial planning. It also does not require any technical expertise to use the calculator.