Gratuity Calculator India for Govt and Private Employees
Gratuity Calculator is to estimate the amount of gratuity an employee is entitled to receive from their employer as a part of their employee benefits package. The gratuity calculation works on a formula with inputs like monthly income, the service duration and dearness allowance.
What is a Gratuity Calculator?
Gratuity calculator is a tool to estimate the gratuity amount one receives if they are planning to leave the job. It is a helpful tool for those employees who are planning to retire from their job. The gratuity calculator works on a formula that uses several inputs. These include last drawn monthly income, the number of years of service (including months) and dearness allowance. The calculator returns the gratuity amount within seconds, and it is straightforward to use. It is free to use multiple times. Also, the calculator helps in long term financial planning to have a stress free retirement.
What is Gratuity in India?
Gratuity is the monetary benefit an employee receives in lumpsum by the company. The company pays it as a gratitude for his/her services to the company. The motive behind gratuity payments is to provide retirement benefits to the employees. Payment of Gratuity Act, 1972 governs the gratuity and its payment rules. Under this Act, an employee has to fulfill specific criteria to be eligible for gratuity payment. The employee must work for at least five years in the company continuously. Employee must not have another full-time employer. In case of death or disability of the employee, even before completion of 5 years, the employee is eligible for gratuity. The gratuity amount cannot exceed INR 10 lakhs. The excess, if any, falls under ex-gratia. Ex-gratia is a voluntary contribution and not compulsorily imposed by law.
The number of months of service is significant in gratuity calculation. In the last year of employment, if the employee works for more than six months, it is rounded off to the next number. For example, if an employee works for 15 years seven months, the number of years of service will be 16 years. However, if the employee works for only 15 years and five months, the number of years of service will be 15 years.
The Payment of Gratuity Act, 1972, prescribes rules for the calculation of gratuity. Under these rules, there are two categories of employees. Namely, employees covered under the Act and employees not covered under the Act. The Act also lists criteria for the organizations that fall under the purview of the Act.
Gratuity Calculation Formula
The Payment of Gratuity Act, 1972, prescribes the rules and calculation of the Gratuity Amount. The Act classifies the employees under two categories:
- Category 1: Employees covered under the Act
- Category 2: Employees not covered under the Act
The above-mentioned categories apply to both private and government employees. However, for government employees, the pay structure varies and hence has additional heads to be accounted for.
How to Calculate Gratuity in 2023 Using Formula?
Using the Gratuity Calculator Formula, one can determine the gratuity amount.
Gratuity (G) = n*b*15/26
n = The number of completed years in the current organization
b = the Last drawn basic monthly salary (plus dearness allowance, the commission received on sales, if any)
Gratuity considers the number of working days in a month as 26
Gratuity calculates wages at the rate of 15 days
Now, let us see how to calculate gratuity for both the above-mentioned categories.
Category 1: Employees covered under the Payment of Gratuity Act
To calculate gratuity for employees under this category, the formula is:
Gratuity (G) = n*b*15/26
The formula is based on a last-drawn salary of 15 days for each year of service completed or part of it exceeding six months.
For example, Ms. Arya is an employee at ABC Pvt. Ltd. for seven years and three months. Her last payslip amounts to INR 1,00,000. The total amount of gratuity she would receive is
Gratuity = 1,00,000*7*(15/26) = INR 4.03 Lakhs
In the above example, the year of experience is seven years. This is because Ms. Arya worked for less than six months in the year. Similarly, in a scenario where years of experience exceed 6 months in a year, then eight years would be considered for computation.
Category 2: Employees not covered under the Payment of Gratuity Act
Employees associated with organizations not covered under the Act are also eligible for gratuity. There is no restricting law that stops an employer from paying gratuity to its employees. Even though the organization is not covered under the Act. The formula applicable for this category is:
Gratuity (G) = n*b*15/30
The amount of gratuity payable to the employee is calculated based on half a month’s basic salary for each completed year. Let’s see how gratuity is calculated with an example.
Mr. Sachin works for XYZ Pvt Ltd. Company for ten years and nine months. His latest basic salary drawing is INR 85,000. The gratuity amount that he is eligible for is
Gratuity = 85,000*10*(15/30) = INR 4.25 Lakhs
In this category, the number of years is taken based on each completed year. Though Sachin worked with the company for ten years and nine months, his tenure is considered as ten years and not 11.
Learn What is Salary Slip?
How to Use Scripbox’s Online Gratuity Calculator?
Scripbox’s Gratuity Calculator in India uses the Gratuity Calculator Formula of
Gratuity (G) = n*b*15/26
Scripbox’s Gratuity Calculator Online is a simple and easy calculator. It helps an employee determine their gratuity value. Also, it helps in determining the value faster.
All the one needs to do is input the following details:
Monthly Salary (Last drawn basic pay + Dearness Allowance)
No. of years of service (in years and months, e.g., nine years, six months)
Upon inputting the required details, the gratuity calculator does the computation and determines the Gratuity Amount. Scripbox’s gratuity calculator can be used by private employees as well.
How Can a Gratuity Calculator Help You?
Upon meeting the eligibility criteria for Gratuity of:
- Age of superannuation
- Five years of employment at the current organization
- Have no other fulltime employment
The user can use the Gratuity Calculator Online in India to determine the Gratuity Amount. Following are the benefits of using the calculators:
- Determining the accurate gratuity value.
- The results are fast, and the calculator is available for free.
- Online gratuity calculators save time from doing the calculations manually.
- The calculator can be accessed from anywhere at comfort.
- It helps in long term financial planning. It is essential to invest the amount wisely rather than holding the amount in a savings bank account. The returns from savings bank accounts do not beat the inflation rate. Therefore results in negative returns. Hence, investors need to invest their gratuity amount to earn significant returns.
What are the Gratuity Rules 2023?
- Gratuity is a sum of money that employers pay their employees as a sign of gratitude for the service they have performed over the years.
- Gratuity is payable under the Payment of Gratuity Act, 1972, which applies to all companies of at least 10 employees.
- Employees who have completed five or more years of service in their respective companies are eligible for gratuity. The condition is not applicable in situations like the death or disablement of an employee.
- The gratuity amount is calculated as 15 days’ wages for every year of service or partial year over six months, based on the last drawn salary (including basic and dearness allowance).
- The maximum limit of gratuity payout is INR 10 lakh unless the employer wishes to pay more as a non-obligatory contribution or ex-gratia.
- The gratuity amount is tax-exempt up to INR 20 lakh under Section 10 (10) of the Income Tax Act.
Gratuity New Rules 2023
- Effective July 1, 2022, the new labour law impacts working hours, Provident fund, and take-home salaries.
- It enforces that 50% of an employee’s CTC must be basic pay, and any excess allowances are considered remuneration under the 2023 gratuity rules.
- This change increases gratuity bonuses calculated on the higher salary base.
- As per the new rule, employees are paid for overtime for 15 minutes or more of work.
- The law sets a maximum work capacity of 48 hours.
Eligibility Criteria for Gratuity in India
To be eligible to receive gratuity benefits, the employee must fit into the following criteria:
- The individual must be eligible for superannuation.
- The individual must have resigned from the job after working for 5 years continuously
- He/she should not have any other full-time employer.
- He/she must be retired from the job.
In case of death, disability, or sickness of the individual, there is an exception to the five years criteria.
Payment of Gratuity
Gratuity is a lumpsum amount paid at the time of retirement to employees as gratitude after completion of 5 years of service. There is no fixed percentage provided by law for calculating the actual gratuity amount. However, the gratuity amount depends on two things.
- The last monthly salary or basic pay drawn
- The number of years of service
These two inputs help calculate the gratuity amount. Also, the gratuity calculator makes it easier to calculate the gratuity amount.
The gratuity payments can be in cash, cheque, or demand draft. However, to receive the gratuity amount, the eligible employee has to apply within 30 days from the dates it becomes payable. Also, the employer must pay the employee within 30 days from the date of receipt of the application.
Which Organization is Eligible for Gratuity?
The Payment of Gratuity Act extends to the whole of India. It shall apply to:
- Every factory, mine, plantation, port, and the railway company
- Every shop or establishment within the meaning of any law. In which ten or more employees are employed or were employed on any day of the preceding 12 months.
- Every shop or establishment in which ten or more employees are employed or were employed on any day of the preceding 12 months as the central government may specify.
In other words, any organization having ten or more employees on a single day in the last 12 months comes under the purview of the Payment of Gratuity Act, 1972.
Income Tax & Exemptions on Gratuity
Gratuity received by an employee is taxable under the head ‘Income from Salary’. The Income Tax department, under the Income Tax Act, has declared gratuity tax-exempt up to a certain limit. They are different for government employees, non-government employees covered under the Act, and non-government employees not covered under the Act.
For government employees, the entire gratuity amount is fully exempt from tax.
Non-government employees covered under the Act, the maximum tax exemption is least of the following:
- 15/26* last drawn salary x completed a year of service or part thereof in excess of 6 months
- INR 20,00,000 is the gratuity limit
- Gratuity received
For non-government employees not covered under the Act, the maximum tax exemption is least of the following:
- Half month’s average salary x Completed years of service
- INR 10,00,000 is the gratuity limit
- Gratuity received
All employees have to comply with the Income Tax Department regulation for the purpose of tax filing. The Income Tax Act prescribes the rules for tax filing. For income tax calculations one can use Scripbox’s income tax calculator. The income tax calculator is available online and is free to use.
Where Can One Invest the Lump Sum Gratuity Amount Received?
The lump sum gratuity amount one receives can be invested in the following saving schemes or investment plans.
- Senior Citizens Saving Schemes (SCSS): Senior Citizens Saving Schemes are safe retirement investment plans. It is one of the post office savings schemes. Investments up to INR 1.5 Lakhs are eligible for tax exemption under Section 80C of the Income Tax Act. Investment in SCSS plans can help in tax savings.
- Fixed Deposits: For decades fixed deposits have been Indians’ best savings options. The current FD interest rate varies around 5.5% – 7.5%. Also, investors can use any of the online FD calculators to determine the returns.
- Debt funds: Debt mutual funds invest across various securities like money market instruments, corporate bonds, government bonds, and other government securities. The capital gain tax of debt funds depends on the investment holding period. Debt funds held for less than three years attract Short Term Capital Gains Tax is added to the taxable income of the investor. While Long Term Capital Gains Tax is for investments that investors hold beyond three years. Also, these gains are taxable at 20% with indexation benefits.
Frequently Asked Questions
Yes, all employees must serve 5 years of continuous service to receive gratuity. However, employees who face disability, sickness, or death need not complete five years of service to receive gratuity from the employer.
If the organization considers contractual or temporary employees as employees, then they are eligible for gratuity. They can then apply for gratuity.
The formula for gratuity is: Gratuity (G) = n*b*15/26.
n = The number of completed years in the current organization.
b = the Last salary drawn or basic pay (plus dearness allowance, the commission received on sales, if any).
Note: The number of working days in a month is considered as 26. Also, gratuity calculation is done at the rate of 15 days wages.
Gratuity is payable to an employee upon
2. Resignation or termination
4. Voluntary retirement Scheme
5. Disability or death
However, the employee must complete a period of 5 years of continuous employment in all the above cases except for disability or death.
An employee who met the eligibility criteria can be rejected by the organization if
1. The employee’s services have destroyed the property of the employer
2. The employee’s Act is violent or disorderly.
3. The employee has committed an offence involving moral turpitude
You can calculate the gratuity amount for private sector employees by using the following formula:
Gratuity (G) = n*b*15/26
n – number of completed years in the current organization
b – Last drawn basic pay (plus dearness allowance, the commission received on sales, if any)
Gratuity considers the number of working days in a month as 26 and wages at the rate of 15 days.
The amount of gratuity depends on your last drawn salary. Based on the number of years that you completed in the organization and last drawn salary you can determine the gratuity amount.
26 is the number of working days in a month. And 15 is the number of earnings days.