Gratuity Calculator

Gratuity x

Basic Salary
per year

Dearness Allowance

Duration of Service

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Gratuity Calculator - Calculate Gratuity

A gratuity is a form of financial payment that an employer makes to his employee who has served him for more than five years. In other words, gratuity is a token or tip that an employee receives as a reward to his long-term services with a specified employer. Gratuity Concepts Explained

Dealing with such terms as Gratuity is always confusing for many. In this section, we attempted to simplify the concepts of gratuity. Take a look:

Why will the employer pay gratuity when salary is already paid?

Understand that gratuity is a legally endowed benefit.

It is to be paid by the employer over and above the wages, provided you serve him for a prescribed amount of time.Another essential point being, unlike Provident Fund where the employer makes half the contribution, and the government makes the other; gratuity is whole to be paid by an employer.Besides, if an employee wishes to contribute to his gratuity, he can do so.

Most employers opt for group gratuity schemes from insurance companies for coming up with gratuity payments for their employees.

Is there any law that rules Gratuity?

Yes, there is. The payment of Gratuity Act, 1972 defines a set of rules for both the employer and employee and thus determines Gratuity paid. The law primarily was designed in 1972 to cover establishments that have more than 10 number of employees. Such organizations included factories, companies, mines, ports, etc.

How do I conclude whether I am eligible for a gratuity from my employer?

As an employee, it is your right to get details about gratuity eligibility and the rules as defined by your employer. In general, an employee becomes eligible for Gratuity once the following set of criteria is met:

  • Eligible for retirement
  • Completed continuous five years of service with the employer
  • Suffers disability due to illness or accident or passes away
Gratuity of a man is not evaluated by money, but by grant of provisions engraved to a man’s portfolio.
– Professor Alexia Thomas

Based on what formula is Gratuity calculated?

Gratuity is calculated based on the formula:

Gratuity = N*B*15/26
Where N is the number of years an employee is associated with the company
B is the last drawn basic salary

Note that:
If intended by the employer, he can pay more than that obtained from this formula too. However, that should not exceed a prescribed amount set by the Gratuity Act. In India, the limit for this is Rs.10 lakh.
If the employer pays over and above Rs.10 lakh, then it comes under ex-gratia, and this is never mandated by law.

Besides, in the above calculation, the number of years N is rounded off to the nearest whole number. For example, if an employee works for seven years 3 months, it will be counted as 7; and if the employee worked for 7 years 8 months, it would be rounded to 8.

Is Gratuity amount taxed?

Never. Gratuity amount is never taxable. It is entirely free from tax.

Can an employer reject gratuity under any circumstances?

Yes. If an employee is terminated under misconduct, the employer deserves full rights to reject gratuity.

To whom will be the gratuity paid in case if an eligible employee passes away during his work tenure?

In case an employee eligible for gratuity dies during his work tenure, the gratuity amount is paid to the nominee. However, note that the gratuity amount paid to the nominee is taxable on the grounds of other incomes that nominee has.

My company is not registered under the gratuity scheme. Am I not eligible for a gratuity from my employer?

You are eligible. Even if your company is not covered under gratuity, no law objects an employer from paying gratuity to an eligible employee. In such cases, gratuity is calculated as (15/30) X last drawn salary X tenure of working.

How to use our gratuity calculator?

Our gratuity calculator gives you an idea about the amount of gratuity that you are eligible. For this, all that you need to do is enter the details of your basic salary, dearness allowance and duration of service in years and months.

Note that as said, if your duration of service is less than 5 years, you get zero as a gratuity.

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