Gratuity Calculator
Calculate your gratuity and tax-exempt amount under the Payment of Gratuity Act, 1972
Gratuity Summary
Gratuity Calculation Breakdown
| Component | Amount (₹) |
|---|---|
| Basic Salary + DA | ₹0 |
| Years of Service | 0 |
| Gratuity Formula | 0 |
| Calculated Gratuity | ₹0 |
| Exemption Limit | ₹0 |
| Tax-Exempt Gratuity | ₹0 |
| Taxable Gratuity | ₹0 |
If you are a salaried employee who has served an organization for five years or more, you are likely entitled to a gratuity payment as a token of appreciation for your long-term service. Understanding how to calculate this amount is essential for financial planning. Our Gratuity Calculator is a comprehensive tool designed to help you accurately estimate the gratuity payable to you based on your salary and years of service.
This guide will walk you through how to use the calculator, explain the official gratuity formula, and clarify the rules around tax-exempt gratuity, empowering you to understand your end-of-service benefits.
Author’s Note: This calculator provides an estimate based on the data you enter and the provisions of the Payment of Gratuity Act, 1972. It is intended for informational purposes only and should not be considered as legal or financial advice. For specific situations, it is always recommended to consult with a human resources professional or a qualified financial advisor.
What is Gratuity?
Gratuity is a lump-sum amount paid by an employer to an employee as a gesture of gratitude for their service to the company. It is a defined benefit plan and a crucial component of an employee’s retirement benefits. An employee is typically eligible for gratuity after completing a minimum of five years of continuous service with the same employer.
How is Gratuity Calculated? The Official Formula
The calculation of gratuity depends on whether your employer is covered under the Payment of Gratuity Act, 1972.
1. For Employees Covered Under the Gratuity Act: Most companies with 10 or more employees are covered under the Act. The formula is: Gratuity = (Last Drawn Salary) x (15/26) x (Number of Years of Service)
- Last Drawn Salary: This includes your Basic Salary + Dearness Allowance (DA).
- 15/26: This represents 15 days’ salary for each year, based on a working month of 26 days.
- Years of Service: Any service period over six months is rounded off to the next full year. For example, 7 years and 8 months of service would be counted as 8 years.
2. For Employees Not Covered Under the Gratuity Act: If an employer is not covered under the Act, they can still choose to pay gratuity. The formula is slightly different: Gratuity = (Last Drawn Salary) x (15/30) x (Number of Completed Years of Service)
- The main difference is that the monthly salary is divided by 30 instead of 26.
- Only completed years of service are considered; rounding off is not applicable.
How to Use the Gratuity Calculator
Our calculator simplifies this process. Follow these steps to get a clear projection:
- Enter Your Salary Details: Input your last drawn monthly Basic Salary and Dearness Allowance (DA).
- Enter Your Years of Service: Provide the total number of years you have worked for the organization.
- Select Establishment Type: Choose whether your company is covered or not covered under the Payment of Gratuity Act, 1972.
- Calculate Your Gratuity: The tool will instantly compute your estimated gratuity amount based on the appropriate formula.
Understanding Gratuity Taxation
Gratuity received by an employee is tax-exempt up to a certain limit under Section 10(10) of the Income Tax Act.
- Tax-Exempt Limit: For employees covered under the Gratuity Act, the gratuity is tax-free up to a lifetime limit of ₹20 lakh.
- Taxable Gratuity: Any gratuity amount received that exceeds this ₹20 lakh limit is considered taxable and will be added to your income for that financial year.
Our calculator will show you both the tax-exempt portion and the taxable portion of your gratuity, if applicable.
Frequently Asked Questions (FAQs)
What is the eligibility for receiving gratuity?
An employee is generally eligible for gratuity after completing five continuous years of service with the same employer. This is payable on retirement, resignation, or in the unfortunate event of death or disablement.
Is Dearness Allowance (DA) included in the salary for gratuity calculation?
Yes, for the purpose of calculating gratuity, “salary” is defined as your last drawn Basic Salary plus any Dearness Allowance (DA).
Is gratuity fully tax-free?
Gratuity is tax-free up to a limit of ₹20 lakh under Section 10(10) of the Income Tax Act for employees covered under the Gratuity Act. Any amount received above this limit is taxable as per your income tax slab.
How are the years of service rounded off for gratuity calculation?
For employees covered under the Gratuity Act, if the service period in the last year is more than six months, it is rounded off to the next full year. For example, if you have worked for 9 years and 7 months, your service period for gratuity calculation will be considered as 10 years.