Gratuity Calculator

You are entitled to receive the gratuity amount after five years of continuous service with the company. You may find out how much gratuity you will earn at the conclusion of your tenure by using the Gratuity Calculator.

Stay tuned to learn more about the gratuity, including its computation and qualifying requirements.

What is Gratuity in India?

The money that businesses give their employees as a gratuity for working continuously for at least five years is known as a gratuity. It is mostly a thank-you gift given to staff members for their dependable work for the business.

The Payment of Gratuity Act, 1972, governs gratuities in India. In accordance with the regulations governing gratuities, if an employee is rendered incapacitated by an illness or accident, they will be compensated within five years.

The terms of service you have provided to the organization and your most recent income are the two main factors that determine the amount of the gratuity.

Eligibility Criteria for Payment of Gratuity

According to gratuity payment rules, if you want to receive a gratuity, you must meet the following eligibility criteria:

• The employee must have resigned from the company after five continuous years of service in the organisation.
• The applicant must have retired from services.
• An employee can receive the gratuity in case he/she has suffered disability from an illness or accident, or, in case of death.
• The employee should be qualified for superannuation or retirement benefits.

What is a Gratuity Calculator?

One tool for figuring out the tip amount is a gratuity calculator. You may determine the actual amount of the gratuity your company will provide you for your ongoing services by entering the exact amounts in the appropriate boxes.

Gratuity Calculation – Formula for Calculating the Gratuity

The gratuity amount is calculated in two different ways for different categories:

1. If the employers are registered under the Gratuity Act.
2. If the employers aren’t registered under the Gratuity Act.

A) Computing the Gratuity Amount of Employees Whose Employer Falls under the Gratuity Act

The gratuity calculation formula in such situations would be –

Gratuity = n x b x 15 / 26

Where ‘n’ is the numbers of years of service in the organization, and

‘b’ is last drawn basic salary plus the dearness allowance

Points to be Noted:

According to the Payment of Gratuity Act, 1972, the gratuity amount can’t go beyond ₹ 20 lakh. Any additional gratuity amount will be considered as ex-gratia.

If your term in the previous year of employment surpasses six months, then round it off to the nearest figure. Suppose that you have served the organisation for 15 years and 7 months, then you will receive the gratuity for 16 years. However, if your service tenure was 15 years and 4 months, then your gratuity would have been for 15 years.

B) Computing the Gratuity Amount of Employees Whose Employer Doesn’t Fall under the Gratuity Act

In such conditions, the gratuity amount calculation is done taking into account the half-month salary on each year of service you have completed.

The formula for computing the gratuity amount in such cases would be –

Gratuity = (15 x Your last drawn salary x the working tenure) / 30.

Benefits of Using Finance Ease Gratuity Calculator

The FinanceEase Gratuity Calculator is a user-friendly computing tool that lets you enter your base pay and years of service. It then gives you an estimate of the gratuity you might receive after working for the company for five or more years.

The gratuity amount is displayed in seconds via the gratuity calculator. It assists you with financial planning by strategically investing the gratuities to maximize your return.

You may use the Finance Ease Gratuity Calculator almost anywhere, even in the comfort of your own home. An internet connection is all that is required.

Taxation Rules for Gratuity

According to recent amendments in the Payment of Gratuity Act, 1972, the least of the following categories is exempt from the tax:

• The actual gratuity received;
• ₹20 lakhs (which has been increased from ₹10 lakh as per the new amendment);
• The last salary (basic + dearness allowance) multiplied by the number of years of tenure x 15/26.

Now let us understand the tax exemption taking into account both previous and New gratuity rules .

Note:

• The number of years of service or the total tenure is rounded off to the nearest full year.
• The previous 10 months’ average salary is considered.

Which OrganiSation/Industry is Eligible for Gratuity?

Under the Payment of Gratuity Act, 1972, the following industries/organisations with 10 or more employees are supposed to pay gratuity:

• Railway companies
• Factories
• Mines
• Oilfields
• Ports
• Plantations
• Shops and other establishments

Income Tax & Exemptions on Gratuity

The gratuity received by the following entities are completely exempted without any upper monetary limit:

• Defence forces
• Government municipalities
• Employees of municipalities

For workers other than the aforementioned, gratuities up to the minimum payable level are tax-free under the Payment of Gratuity Act, 1972. Therefore, regardless of the total gratuity amount, any further gratuity received by the employee beyond the 15 days of each completed year of service will be taxed.

The employee's wage for the ten months before to the day the gratuity is due must be taken into account in order to calculate the salary for the next fifteen days.

Where Should the Received Gratuity Be Invested?

A gratuity is a sizeable sum of money given to employees by their employer after they have worked there for a certain length of time. Consequently, it would not be prudent to spend all of the funds in one location. So, what ought one to do?

ThIs it better to invest it or retain it in your savings account?

First, determine if you can live without the money for a few years or if you will need it for five years.

Diversification would be the wisest course of action. You may invest the remainder in mutual funds, SIPs, and the stock market, and keep part for yourself.

You are ready to proceed if you have prior investment experience. If not, you can get some professional advice. Make sure you have done your homework before doing anything, otherwise you risk losing all of your money.