Gratuity Calculator

Gratuity refers to the sum that employees in an organization obtain when they quit the company after five or more years of offering their services. It is usually the financial element a company presents to a worker in return for the assistance delivered. This sum generally helps the worker when they retire. Furthermore, this sum is also given out to workers in case of their untimely demise, disability, or willing retirement due to health problems. Keep reading below to learn more about a gratuity calculator and how you can use it to calculate your gratuity amount. 

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Gratuity refers to the sum that employees in an organization obtain when they quit the company after five or more years of offering their services. It is usually the financial element a company presents to a worker in return for the assistance delivered. This sum generally helps the worker when they retire.

Furthermore, this sum is also given out to workers in case of their untimely demise, disability, or willing retirement due to health problems. Keep reading below to learn more about a gratuity calculator and how you can use it to calculate your gratuity amount. 

As the name implies, a Gratuity calculator refers to an easy tool that helps you calculate the gratuity sum an employee is eligible to get if they quit their job. Furthermore, a gratuity calculator is also one of the most valuable tools if the employees in an organization are planning to take voluntary retirement. 

This gratuity calculator functions on a formula that employs several inputs that comprise the last earned monthly salary, dearness allowance and the number of years of service in the workplace (including months). In addition, when you use an online gratuity calculator, you can seamlessly get the exact gratuity sum in just one click.

Also, you must note that a gratuity calculator is free to use online that assists you in long-term economic planning for a worry-free retirement. Hence it might not be wrong to say that a gratuity calculator is a beneficial and easy-to-use online tool to effectively calculate the gratuity amount paid or received if an employee has been serving in an organization for over 5 years without any service suspension.

The gratuity calculator online by 5paisa has been developed with a seamless, easy-to-use website interface. Therefore, it is quite effortless to use it to calculate your gratuity payment. Also, if you are new to this tool, here are some tips you can follow to calculate your gratuity payment: 

Step 1: On the 5paisa gratuity calculator online, enter the last salary drawn (i.e. the primary wage and dearness allowance). 

Step 2: Next, fill the total term or years of service with a company.

Step 3: Tap on the 'Submit' button.

Step 4: The 5paisa gratuity amount calculator will provide you with the gratuity amount owed in seconds.  

Step 5: You can follow the same step to calculate your gratuity anytime by simply adjusting the primary salary and number of service years in the workplace. 

The Payment of Gratuity Act, 1972, defines the regulations related to Gratuity amount calculation. In addition, the Payment of Gratuity Act, 1972 categorises the workers under two categories:

Category 1: Workers covered under the Payment of Gratuity Act, 1972 
Category 2: Workers not covered under the Payment of Gratuity Act, 1972

The above classifications apply to both government and private workers. Nevertheless, for employees in the government sector, the pay structure differs. Also, the formula to calculate gratuity is simple and you can compute gratuity using the formula below to get the accurate calculation of gratuity on retirement

Gratuity (G) = n*b*15/26


n stands for the number of completed years in the current workplace

b stands for the last drawn basic monthly wage (plus dearness allowance, the commission obtained on sales, if any)

Note: Gratuity calculation takes into account the number of working days in a month as 26 days and estimates wages at a rate of 15 days. 

Below are the gratuity calculation formulas for the above-listed classifications. 

Category 1: Workers covered under the Payment of Gratuity Act

To compute gratuity for workers under this classification, the formula is:

Gratuity (G) = n*b*15/26

This gratuity calculation formula is based on the last paid wages of 15 days for every year of service ended or part of it overextending six months.

Category 2: Workers not covered under the Payment of Gratuity Act

Workers associated with companies not covered under the Payment of Gratuity Act are also qualified for gratuity payment. In addition, there is no limiting regulation that prevents an organization from paying gratuity to its workers even though the company is not protected under the Act. The formula applicable for this classification is:

Gratuity (G) = n*b*15/30

The sum of gratuity owed to the worker is estimated based on half a month’s primary wage for each completed year.

Upon fulfilling the eligibility standards for Gratuity of:

  • Five years of work at the present company
  • Age of superannuation
  • Holding no other full-time job

A person can perform the gratuity amount calculation. Below are some advantages of using the 5paisa gratuity calculator:

  • Defining the correct gratuity worth
  • 5paisa gratuity calculator helps you save time that you spend doing the calculations manually
  • The outcomes are quick, and the calculator is accessible for free
  • You can readily use this gratuity calculator from any web or mobile device

Gratuity earned by a worker remains taxable according to the Indian Income Tax Act under the head ‘Income from Salary’. In addition, the Income Tax department announced gratuity tax-exempt up to a specific extent that differs from non-government employees, government employees covered under the Act, and non-government workers not covered under the Act. So when using an employee gratuity calculator, you must consider this factor. Below is an overview of tax exemption on gratuity: 

For government workers, the whole gratuity sum is entirely exempt from tax.

For non-government employees covered under the Payment of Gratuity Act, the highest tax exemption is least of the following:

INR 20,00,000 is the gratuity limit
15/26* previous drawn wages x a year of service or part thereof in excess of 6 months
Gratuity received

Gratuity is the monetary benefit an employee receives from their company under the provisions mentioned in the Payment of Gratuity Act 1972. The only pre-requisite to receiving a gratuity is that the employee must have completed five years of service. It is given as a lump sum amount when an employee decides to leave the company. 

To receive the gratuity amount, you have to make a request within thirty days of becoming eligible for gratuity. The employer is liable to make the payment within thirty days of receiving your request for gratuity. You can receive the amount in cash, cheque or demand draft.  

The calculation of gratuity amount considers two aspects.

The last drawn monthly salary or basic salary.
The number of years spent in the company.

In the case of government employees, dearness allowance is added to the basic salary for calculating the amount. In some cases, the commission earned on sales is also added. 

Gratuity calculators help you in calculating the amount to make informed investment decisions. 

Earlier, the gratuity was capped at INR 10 Lakhs. However, as per a new amendment, an employee can receive up to INR 20 Lakhs as gratuity upon resignation, retirement or death. This raised ceiling has been effective since March 2018. An employer can choose to pay more gratuity than the ceiling.

In the case of the death of an employee, gratuity is calculated as per the total number of years the employee has spent in service with that employer.

The payable gratuity amount would be 2 * basic salary if the employee spent less than one year in service.
The payable gratuity amount would be 6 * basic salary if the employee served more than one year but less than five years.
The employer has to pay 12 * basic salary if the employee worked for more than five but less than eleven years.
The employer has to pay 20 * basic salary if the employee has spent more than eleven years but less than twenty years.
For a period of more than twenty years, the payable gratuity is half the amount of the basic salary for every six months completed in the organization. However, there is a cap of 33 times the basic salary.

As gratuity is received in lumpsum, you can invest this amount wisely to earn high returns. It is inadvisable to let the amount sit idly in your savings account. As the bank rates have dipped drastically and the inflation is high, your returns can run negative.

Here are some options you can explore to invest your gratuity amount.

Fixed Deposits - Fixed deposits are one of the safest investment instruments to earn interest from your gratuity amount. Traditionally, Indians have preferred to invest their money in fixed deposits compared to other instruments due to their low-risk nature.
These days you can get returns in the range of 3-5.5%. You can get higher returns if you invest for a longer time. In the case of senior citizens, the returns can be higher by a few points. You can use any online calculator to understand the returns if you are considering this option to invest your gratuity amount. 

Debt Funds - If you are looking for higher returns but still prefer a safer option, you can check out debt mutual funds. These funds invest your money into debt instruments like government bonds, corporate bonds and other money market instruments. However, you will have to pay tax on your earnings. Short Term Capital Gains Tax becomes valid if you exit your debt fund before three years. For a tenure longer than three years, you will have to pay Long Term Capital Gains Tax.

In this case, the bond issuers share a pre-decided interest. So, you will always know the returns beforehand. It is advisable to research the instruments before investing to make an informed decision.

Senior Citizens Savings Scheme (SCSS) - This is a government scheme specially formulated for senior citizens by the government of India. It can help you earn reasonable interest and receive quarterly interest payments. The maturity period of this scheme is five years. However, you can extend it to eight years.

You can open this account at either a bank or a post office. You also get the option to have it jointly with your spouse. Under this scheme, you can open multiple accounts, but the total amount of investment cannot exceed INR 15 lakhs.

SCSS also gives you the benefit of income tax deductions as per Section 80C of The Income Tax Act. 

Equity Mutual Funds - If you have a higher risk tolerance, you can consider equity mutual funds or hybrid mutual funds. However, it is recommended to study the past performance of the funds before investing. It will help align your goals with your financial decision.

All in all, an online gratuity calculator has made gratuity calculation a seamless task. Nevertheless, as the calculations depend on several factors such as job term or the basic salary, you must consider all these aspects for better calculation.

Frequently Asked Questions

To become eligible for applying gratuity, you need to complete five full and consecutive years with an employer. However, this criteria does not hold if an employee suffers disability, sickness, or death. It means they become eligible for gratuity even when they have not completed five years of service with their current employer.

In case of the death of the employee, the legal heir or the nominee can receive the gratuity benefit.

This is a debatable issue. As per a High Court decision, an employee who has completed 240 working days in the 5th year becomes entitled to receive gratuity. However, it also depends upon the rules set by your employer.

The employer is liable to pay gratuity in any of these circumstances.

On superannuation or retirement of the employee.
Discontinuation of the employment contract either through resignation or termination.
Disability, sickness or death of the employee.
Retrenchment or layoff.
When an employee enlists for the VRS or Voluntary Retirement Scheme.

For calculating the gratuity amount, service of more than six months is considered one year. It means you should have completed one day over and beyond six months to receive a gratuity for that year. However, remember that you still need to have completed five years of service.

Yes, contractual and temporary employees are eligible for gratuity as long as the company considers them employees. However, an apprentice is not qualified to apply for gratuity.

No, it does not matter whether your employer has a five-day or six-day working week, the formula for the calculation of gratuity remains the same.

There are a few scenarios in which the employer can refuse to give the gratuity. These instances include:

1. When the employee’s services have destroyed the property of the employer.

2. The employee was violent or disorderly within the premises of the employer.

3. The employee has been involved in an offense involving moral turpitude.

You may want to note that the employer is liable to pay the gratuity even if they have suffered financial losses. The above-mentioned clauses are the only situations when the employer can refuse to pay gratuity.

The gratuity received by government employees is exempted from tax.

Private employees eligible to receive gratuity on retirement can get a tax exemption.  The least of the following are exempt from tax: 

  • The statutory limit of INR 20 Lakhs. (Maximum limit / Govt notified amount)
  • Last drawn salary * 15/26 * No. of completed years of service.
  • Actual Gratuity received.

Disclaimer: The calculator available on the 5paisa website is intended for informational purposes only and is designed to assist you in estimating potential investments. However, it is important to understand that this calculator should not be the sole basis for creating or implementing any investment strategy. View More..