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Calculate gratuity online using our gratuity calculator

Personal Finance
08-11-2023

There is always a difference between the CTC offered and the salary you get in hand. There could be various reasons for this, such as tax deductions in the form of TDS, provident fund, and pension contributions, which are reduced from your salary. One such deduction is gratuity. Well, what is gratuity, and how can we calculate the gratuity portion of our salary? Let’s find out!

What is Gratuity?

The Payment of Gratuity Act of 1972 defines gratuity. Employees are paid gratuity by organizations. This is for the services provided by them to the organization. Gratuity is one of the several parts of an employee’s salary. An employee is entitled to gratuity after providing service for 5 years.

How to Calculate Gratuity?

There are two categories of employees. This depends on their coverage under the Gratuity Act. The following is the Gratuity Calculator Formula 2021:

Category 1: Covered under the Payment of Gratuity Act, 1972

Gratuity = (15/26) * Last drawn salary * Number of service years with the organization

Here, 26 stands for the number of working days in each month. Gratuity is calculated for 15 days’ wages. The last drawn salary covers basic, dearness allowance, and commission on sales.

For example, Mr A served for eight years. His last drawn salary and dearness allowance are ₹ 50,000. Gratuity calculator India will work as the following:

(15/26) 50000 * 8 = ₹4,00,000

Category 2: Not Covered under Payment of Gratuity Act, 1972

Gratuity = (15/30) * Last drawn salary * Number of service years with the organization

Here, 30 indicates the number of working days in each month. Gratuity calculation is done for 15 days’ wages. The last drawn salary covers basic, dearness allowance, and commission on sales.

For example, Mr B served for ten years. His last drawn salary and dearness allowances are ₹ 50,000. Gratuity calculator India will work as the following:

(15/30) 50000 * 10 = 250000

Online Gratuity Calculator

As you can see, gratuity is not that easy to calculate. So, how can you easily calculate gratuity in your salary? Just use an online gratuity calculator!

Several online gratuity calculators are available to calculate. You only need to enter the relevant details. The calculator will calculate the amount you must receive. It will be based on the inputs you provide. You must provide the following details to calculate the gratuity:

• Monthly Salary (Basic + DA): Last salary that you received from your company. It includes the Basic Salary and Dearness Allowance.
• Years of Employment: Number of years you have been employed at the company

The gratuity calculator online will calculate your gratuity amount based on these inputs. It will then display the final gratuity amount you are eligible to receive.

Benefits of Gratuity Calculator Online

The following are the benefits of the gratuity calculator online:

• It makes the calculation of gratuity simple and easy.
• It eliminates errors in calculating gratuity.
• It allows employees to decide whether to opt for gratuity or not.
• It allows quick and fast calculation of gratuity.
• It is a web-based calculator. So anyone can access a gratuity calculator anytime, anywhere.

Eligibility Criteria for Gratuity

To receive a gratuity, you need to fulfil the following eligibility criteria:

• You must have provided 5 years of service to your employer.
• The employee should either retire from the company or leave the services to receive a gratuity.
• In case of the death of the employee, his legal heirs can receive the gratuity amount.
• Employees can receive gratuity if they become disabled due to a disease or accident.

Organizations Required to Pay Gratuity

Is every company or organization liable to pay gratuity? No.

Organizations that meet the eligibility criteria must pay gratuity to their employees. An organization must pay gratuity to its employees if it employs 10 or more employees.

How is Gratuity Taxed?

Gratuity is treated as income under the Income Tax Act 1961. It goes under the head “Income From Salaries”. The income tax law has provided an exemption for the gratuity received by the employees. So, is gratuity fully exempt from tax?

The answer is yes, but it is exempt only for government employees. Non-government employees are partially exempted from gratuity. They can claim exemption from gratuity subject to the following conditions:

If the employee is covered under the gratuity, the least of the following amount shall be exempt:

• Gratuity up to Rs. 20 lakh
• Last drawn basic salary x Number of years of service x 15/26
• The actual gratuity amount received

The method to calculate exemption varies. It changes if the employee is not covered under the gratuity act. In such cases, the least of the following amount shall be exempt:

• Gratuity up to Rs. 20 lakh
• 15/30 x average salary x number of completed years of service
• The actual gratuity amount received

In a nutshell

Although paying gratuity is a beneficial practice for employees, its calculation is a bit tricky. While you can manually calculate gratuity, you will likely make mistakes. So, it is better to use a gratuity calculator online. It ensures that you know the correct amount of gratuity you are entitled to. It reduces the burden of calculating gratuity manually. It also provides you with a quick calculation. Further, you must keep a check on your taxes. This ensures you do not pay high taxes on your gratuity income.