Gratuity Calculator

What is Gratuity?

Gratuity is a monetary benefit paid to employees by their employers as a token of gratitude for their services. It's a statutory benefit governed by the Payment of Gratuity Act, 1972, and is payable when an employee completes at least 5 years of continuous service with the organization.

Gratuity Eligibility

• Minimum Service: 5 years of continuous service with the employer
• Coverage: Applicable to factories, mines, oilfields, plantations, ports, railways, shops, and establishments
• Employee Count: Organizations with 10 or more employees
• Exceptions: Minimum service period not required in case of death or disablement

Gratuity Calculation Formula

The gratuity amount is calculated using the following formula:

Gratuity = (Last Drawn Salary × 15/26) × Completed Years of Service

• Last Drawn Salary: Basic salary + Dearness Allowance
• 15/26: Represents 15 days salary for each completed year of service
• Completed Years: Service period is rounded down to nearest full year
• Maximum Calculation: Service period considered for calculation is capped at 33 years

When is Gratuity Payable?

• Retirement: Upon reaching retirement age
• Resignation: After completing 5 years of service
• Death: Payable to nominees irrespective of service period
• Disablement: Due to accident or disease, irrespective of service period
• Retrenchment: In case of layoffs or retrenchment
• VRS: Under Voluntary Retirement Scheme

Gratuity Taxation Rules

• Tax Exemption Limit: Up to ₹20 lakh is tax-free
• Government Employees: Entire gratuity amount is tax-exempt
• Private Sector: Minimum of actual gratuity, ₹20 lakh, or (15 days salary × completed years)
• Treatment: Taxable under "Income from Other Sources" for amounts above exemption
• Death Case: Paid to nominees, taxed as income from other sources

Gratuity Payment Process

• Application: Employee must submit gratuity application in Form I
• Time Limit: Must be paid within 30 days of application
• Interest: Simple interest payable if payment delayed beyond 30 days
• Forfeiture: Can be forfeited in case of termination due to misconduct
• Nomination: Employees should nominate beneficiaries for gratuity

Gratuity Calculation Examples

Forfeiture of Gratuity

Gratuity can be forfeited under certain circumstances:

• Misconduct: If employee is terminated for riotous or disorderly conduct
• Damage: For causing damage or destruction to employer's property
• Criminal Acts: For any act constituting an offense involving moral turpitude
• Proportionate Forfeiture: Only gratuity for period of misconduct may be forfeited

Recent Amendments and Updates

• Tax Exemption Increased: From ₹10 lakh to ₹20 lakh in 2018
• Coverage Expansion: Extended to more categories of establishments
• Ceiling Revision: Gratuity ceiling revised periodically by government
• Digital Processing: Online gratuity filing and tracking systems

Gratuity vs Other Benefits

Tips for Employees

• Track Service Period: Maintain records of your service tenure
• Salary Structure: Understand your basic salary and DA components
• Nomination: Update gratuity nomination regularly
• Documentation: Keep all salary slips and service records
• Financial Planning: Include gratuity in retirement planning