Introduction to Gratuity Calculator:
Gratuity refers to the amount that an employer pays his employee, in return for services offered by him to the company. Find out more about Gratuity by reading our blog. We have also included a gratuity calculator for your reference.
Before we introduce you to the Gratuity Calculator, let us first understand the concept of Gratuity in detail:
The amount that a corporation pays its employee as a “gratuity” for services rendered to it is referred to as a gratuity. The gratuity sum, however, is only granted to employees who have worked for the business for five years or longer. The 1972 Payment of Gratuity Act controls it.
If an employee becomes handicapped in an accident or due to a disease, they are eligible to receive their gratuity before the five-year mark. The amount of your gratuity is primarily based on your most recent income and the number of years you have worked for the company.
What are the eligibility criteria for the payment of gratuity?
They ought to be qualified for retirement benefits
The person resigns after five years with a single employer
They retire from work
They become disabled, or pass away as a result of a sickness or accident
Gratuity Calculation:
n*b*15/26
n = the number of years served in the company
b = the last drawn salary including dearness allowance
Let’s understand this with an example:
Person Z has served a company for 6 years. The salary of the person is Rs.60,000
Therefore the Gratuity amount will be: (6*60,000*15)/26 = Rs.2,07,692.31
Nonetheless, a company has the option of giving an employee a larger gratuity.
The organisation may pay gratuities even if it is not covered by the Act. Yet for each year that has passed, a person’s half-month wage is used to determine how much gratuity they will receive. The pay package consists of a base salary, a commission (depending on sales), and a depreciation allowance.
Alternate Gratuity formula:
(15 * Last drawn salary amount * length of service) / 30 = gratuity amount.
Let’s take another example:
Person Y has served a company for 7 years and draws a salary of Rs.80,000. The gratuity amount in this case is: (15*80,000*7)/30 = Rs.2,80,000
For each completed six-month period, the gratuity amount is equivalent to one-fourth of the employee’s most recent basic wage. The amount of the retirement gratuity that is due is 16 times the base wage. However, there is a Rs. 20 lakh cap on it.
Latest Advancements in Regard to Gratuity:
The cap on tax-free gratuities for private-sector employees was increased from Rs. 10 lakh to Rs. 20 lakh, which is one of the most significant developments. After the 7th Central Pay Commission was announced and put into effect, the same was done for employees of the central government.
The Union Government has also suggested a number of security measures for the workforce in light of the recent pandemic and virus outbreak throughout the country. Nirmala Sitharaman, the finance minister, recently revealed in one of her news conferences that the government intends to offer the payment of gratuity following the conclusion of a year of service. This will apply to a company’s fixed-term employees.
Calculation of Gratuity in Case of Death of an Employee:
The gratuity benefits are determined based on the employee’s length of service in the event of death. The sum is however limited to a maximum of Rs. 20 lakh. The rates at which the gratuity will be paid in the event of an employee’s death are shown in the following table:
| Tenure of Service | Amount payable towards gratuity |
| Less than a year | 2 * basis salary |
| 1 year or more but less than 5 years | 6 * basic salary |
| 5 years or more but less than 11 years | 12 * basic salary |
| 11 years or more but less than 20 years | 20 * basic salary |
| 20 years or more | Half of the basic salary for each completed six-monthly period. However, it is subject to a maximum of 33 times of the basic salary. |
Few Significant Points About Gratuity
A gratuity exceeding Rs. 10 lakh may be given to an employee by their employer; in this case, the tax exemption will be established in accordance with the standards described above under taxation.
If an employee has been asked to leave a job due to misconduct, the employer has the right to refuse payment of gratuity to that employee.
When an employee passes away, the gratuity is paid to their representative or heir. The amount of tax due by the receiver is calculated under the category of “income from other sources.”
Finally we reach the gratuity calculator section 🙂
Here is the link to the Gratuity Calculator:Gratuity Calcutor
Steps to use the Gratuity Calculator:
Enter the number of years of service
Enter the salary (Including the dearness allowance)
And you are done!
In the end, you get the gratuity value
Additional Links:
We hope that the blog was a pleasant read. Do check out our blogs and LinkedIn articles as well.
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