What is Gratuity?
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.
What are the Eligibility Criteria for Payment of Gratuity?
To receive the gratuity, you must meet the following eligibility criteria:
- You should be eligible for superannuation.
- You should have retired from service.
- You should have resigned after continuous employment of five years with the company.
- In case of your death the gratuity is paid to the nominee, or to you on disablement on account of a sickness or an accident.
What is a Gratuity Calculator?
The Gratuity Calculator would calculate the gratuity amount based on the formula for calculating the gratuity.
(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.
What is the Formula for Calculating the Gratuity?
- The amount of gratuity for employees whose employer is covered under the Gratuity Act can be calculated using the formula:
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.
- For employees whose employer is not covered under the Gratuity Act, the gratuity amount would be calculated as per the half-month salary on each completed year of service.
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.
How to Use the ClearTax Gratuity Calculator?
Follow these steps and calculate your gratuity using the ClearTax Gratuity Calculator:
- You must enter the basic salary and the dearness allowance if applicable, using the slider.
- You then enter the number of years of service with the company.
- The gratuity calculator would calculate the total gratuity amount payable to you in seconds.
- You can recalculate the gratuity anytime, by changing the input sliders.
- The gratuity will be calculated instantly when you move the sliders.
Benefits of 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.
What are the 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.
FAQs on Gratuity Calculator
I resigned from my job after working for 4.5 years. Would I be eligible to receive gratuity?No, you must complete at least five years of continuous service to be eligible for gratuity. However, the gratuity would be paid before five years of service, on death or disablement because of a disease or an accident.
If an individual is a contract employee, will he receive gratuity on completing 5 years in service?If the individual is on the rolls of the company, he is an employee of the firm. He will receive gratuity as per the rules. But, if he works under a contractor who is not part of the company, the contractor must pay the gratuity.
Is there any upper limit on the amount of gratuity that you will receive?Yes, the amount of gratuity paid by a company cannot exceed Rs 20 lakh, irrespective of the number of years of service.
How much time does the employer take to release the gratuity amount?An employee who is eligible to get the gratuity amount can submit an application within 30 days of the date on which it becomes payable. However, the claim for a gratuity will not be invalid, just because the claimant did not file the application within the stipulated time.
The employer would have to specify the gratuity amount, within 15 days from the date he receives the application. The gratuity amount must be paid within 30 days of the employer receiving the application form. If the employer misses the deadline, he must pay the gratuity amount and simple interest which is incurred on it.
Will I lose the gratuity amount if my employer goes bankrupt?The gratuity amount would be payable even if your employer goes bankrupt. No court order can put a stay on the gratuity amount.
Will the ClearTax Gratuity Calculator show an accurate figure for the gratuity amount?Yes, provided you enter the correct inputs. You must enter the basic salary including the dearness allowance if it is applicable. The tenure of five or more continuous years of service must also be entered to get an accurate gratuity amount.