Gratuity refers to the amount that an employer pays his employee, in return for services offered by him to the company. However, only those employees who have been employed by the company for five years or more are given the gratuity amount. It is governed by the Payment of Gratuity Act, 1972.
The employee can get the gratuity before five years if he/she gets disabled in an accident or due to a disease. Gratuity mainly depends on your last drawn salary and the years of service which are rendered to the Company.
To receive the gratuity, you must meet the following eligibility criteria:
The Gratuity Calculator would calculate the gratuity amount based on the formula for calculating the gratuity.
Gratuity Formula:
(15 * your last drawn salary * tenure of working) / 26.
A gratuity calculator is a tool which gives you an estimate of the amount that you would receive, on quitting the job, after rendering a continuous five years of service. It is a handy tool to calculate the gratuity on retirement from the company.
You must enter the inputs of the last drawn salary and the tenure of continuous service with the company. The last drawn salary includes your basic salary, the dearness allowance, and the commission that you have received from sales.
The gratuity calculator would show you the gratuity figure in seconds. It is simple to use and can be used any number of times.
Gratuity = n*b*15 / 26
Where n = Tenure of service completed in the company
b = Last drawn basic salary + dearness allowance
For example, you have worked with the XYZ company for a period of 15 years. Your last drawn basic salary along with dearness allowance was Rs 30,000. Hence:
The amount of gratuity = 15 * 30,000 * 15 / 26 = Rs 2,59,615
Two points must be noted here:
As per the Gratuity Act, the amount of gratuity cannot be more than Rs 20 lakh. Any excesses would be treated as ex-gratia.
If the number of years you have worked in the last year of employment is more than six months, then it will be rounded to the nearest figure. Suppose your tenure of service is 16 years 7 months, then you receive the gratuity for 17 years. Otherwise, its for 16 years if it happens to be 16 years 4 months.
The formula is: (15 * Your last drawn salary * the working tenure) / 30.
For example, you have a basic salary of Rs 30,000. You have rendered continuous service of 7 years and the employer is not covered under the Gratuity Act.
Gratuity Amount = (15 * 30,000 * 7) / 30 = Rs 1,05,000.
Follow these steps and calculate your gratuity using the ClearTax Gratuity Calculator:
The ClearTax Gratuity Calculator is an easy-to-use generic tool, where you enter the basic salary and the years of service. It gives you an estimate of the gratuity you would receive, after five or more years of continuous service.
The gratuity calculator shows you the gratuity figures in seconds. It helps you plan your finances by investing the gratuity in a smart manner, for a maximum return.
You can use the gratuity calculator from the comfort of your home or practically anywhere to get the gratuity amount.
The tax treatment of the gratuity amount depends on the type of employee who has to receive the 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.