Gratuity Calculator

What Is Gratuity Calculator?

A gratuity calculator estimates the amount you’ll receive upon quitting after five years of continuous service. Simply input your last drawn salary and tenure to get the gratuity figure instantly.

Formula For Calculating Gratuity

Gratuity for employees covered under the Gratuity Act is calculated using the formula: Gratuity = (n * b * 15) / 26

For employees not covered under the Gratuity Act, the formula is: Gratuity = (15 * last drawn salary * tenure) / 30

Where:

• n = Tenure of service in years
• b = Last drawn basic salary + dearness allowance

Example For Calculating Gratuity

Example 1

If you worked for 15 years with a last drawn salary of ₹30,000, the gratuity would be:

• Gratuity = (15 * 30,000 * 15) / 26 = ₹2,59,615
• The maximum gratuity amount is ₹20 lakh; any excess is treated as ex-gratia.
• If tenure exceeds six months in the final year, it is rounded up.

Example 2 

With a salary of ₹30,000 and 7 years of service (not covered under gratuity act), the gratuity would be:

• Gratuity = (15 * 30,000 * 7) / 30 = ₹1,05,000.

How To Use ClearTax Gratuity Calculator?

Follow these steps and calculate your gratuity using the ClearTax Gratuity Calculator:

• Enter the basic salary and the dearness allowance if applicable
• Enter the number of years of service with the company.

The gratuity calculator will calculate the total gratuity amount payable to you.

Benefits Of ClearTax Gratuity Calculator

• The ClearTax Gratuity Calculator is an easy-to-use tool that estimates gratuity based on basic salary and years of service.
• It provides quick gratuity estimates after five or more years of continuous service.
• The calculator helps plan finances by offering insights on how to invest the gratuity for maximum return.
• Accessible from anywhere, it allows users to calculate their gratuity amount conveniently from home or on the go.

Taxation Rules for Gratuity

The tax treatment of the gratuity amount depends on the type of employee who has to receive the gratuity.

• The amount of gratuity received by any government employee (whether central/state/local authority) is exempt from the income tax.
• Any other eligible private employee whose employer is covered under the Payment of Gratuity Act. Here, the least of the following three amounts will be exempt from income tax
  • Rs 20 lakh.
  • The actual amount of gratuity received.
  • The eligible gratuity.

For example, your employer had paid you a gratuity of Rs 12 lakh. As per the gratuity calculation in the earlier example, you are eligible for a gratuity amount of Rs 2,59,615. The government has set Rs 20 lakh as the upper tax-free limit. The lowest of the three figures is Rs 2,59,615, which is exempt from tax. You must pay tax on the remaining amount of Rs 9,40,385 as per your income tax slab.

Do note that in your entire working life, the maximum tax-exempt gratuity amount you may claim, cannot go beyond Rs 20 lakh.

Gratuity Amount Investment Options

Investing the gratuity amount involves taking into account various options that help in addressing the financial goals based on risk appetite, and investment horizon. Here’s the lowdown on a few of the tools to consider when it comes to investing the gratuity amount:

• Fixed Deposits (FDs): FDs with banks or post offices are low-risk investment vehicles that provide guaranteed returns. They provide capital preservation and are ideal for those who look forward to safety over higher returns.
• Public Provident Fund (PPF): This is a tax-efficient, long-term investment tool with a lock-in period of 15 years. It offers tax benefits under Section 80C of the Income-Tax Act (ITA), 1961, and is a preferred choice when it comes to retirement savings.
• Employee Provident Fund (EPF): For those looking forward to a new job, such individuals can opt to transfer their gratuity funds to the EPF account. Along with safety, EPF provides tax benefits and is designed for retirement savings.
• National Pension System (NPS): This is a voluntary, long-term retirement savings system that offers tax benefits. It allows an individual to invest in a mix of equity and debt instruments, thus providing the potential for higher returns.
• Equity Mutual Funds: These invest in stocks and can provide potentially higher returns in the long run. An individual has the choice from various categories of mutual funds depending on their financial goal, risk appetite, and investment horizon.
• Debt Mutual Funds: These primarily invest in fixed-income securities such as bonds and provide stable returns with lower risk as against equity funds.
• Sovereign Gold Bonds (SGBs): These provide an individual with the option to invest in gold in a paperless form and offer tax benefits. SGBs come with a fixed tenure and interest rate.
• Real Estate: This can be a viable option, either via direct property purchase or indirectly through Real Estate Investment Trusts (REITs).
• Stock Market: Those with a good understanding of the stock market and have a higher risk appetite, can mull over investing directly in stocks or equity shares.
• Bank Recurring Deposits (RDs): These offer regular savings and are ideal for those who look forward to investing a fixed sum of money every month.

It is important to note that diversifying investments across various asset classes can aid in managing risk. In addition, take into account factors such as liquidity needs, taxation, and inflation when making investment decisions. Also, regularly review and adjust the investment portfolio as per the financial situation and changes in goals.