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Gratuity Calculator Formula: Online Gratuity Calculator to Get Gratuity Amount

As per the Payment of Gratuity Act of 1972, any organisation having more than 10 employees is required to provide gratuity to their employees. Gratuity refers to the amount that an employee receives after he/she discontinues employment.

You can use the gratuity formula to calculate your earnings. Given below is the brief idea on gratuity, its eligibility criteria, calculation and others.

What is gratuity?

Gratuity is the lump sum amount that you (as an employee) receive from your employer at the time of retirement or resignation. The contribution towards your gratuity is made by the employer.

You employer may choose to pay your gratuity from the organisation’s profit or deposit in various types of investment schemes such as gratuity insurance plans to receive a lump sum amount at the end of the policy term. In such cases, you can also contribute to pay the premiums of the insurance scheme towards your gratuity.

Eligibility criteria

To be eligible to receive gratuity, you are required to meet its eligibility criteria as discussed below –

  • Have completed five years of continuous service under the same employer.
  • Not have been terminated or asked to resign under any grounds of misconduct.
  • Be eligible for superannuation.

Additionally, in case of the demise of an employee or any disability due to accident or illness, the gratuity amount will be paid to his legal heirs or appointed nominee.

Calculation

You can avail access to online gratuity calculators with which you can estimate your gratuity and manage your money more effectively. To determine your gratuity amount using an online calculator, you will have to enter your monthly salary and working tenor.

You can also calculate your gratuity amount using the gratuity formula as given below:

For employees covered under the Payment of Gratuity Act

The formula is (15 X monthly salary working tenor) / 26

Example 1 

  • Suppose your basic monthly salary is Rs. 30,000
  • Your working tenor is 15 years seven months

Using the gratuity formula – (15 X 30,000 X 16) / 26 = Rs. 2,76,923 (approximately)

Example 2 

  • A basic monthly salary of Rs. 40,000
  • A working tenor of 15 years three months

Using this formula for gratuity – (15 X 40,000 X 15) / 26 = Rs. 3,46,154 (approximately)

For employees not covered under the Payment of Gratuity Act

The formula is (15 X monthly salary working tenor) / 30

Example 3 

  • Suppose your basic monthly salary is Rs. 30,000
  • Your working tenor is 15 years seven months

Using the gratuity formula – (15 X 30,000 X 16) / 30 = Rs. 2.4 Lakh

Example 4

  • A basic monthly salary of Rs. 40,000
  • A working tenor of 15 years three months

Using this formula for gratuity – (15 X 40,000 X 15) / 30 = Rs. 3 Lakh

With this substantial amount, you can deposit the funds in various types of investment schemes to yield higher returns.

Taxation

The tax-free limit for gratuity has been extended to Rs. 30 Lakh from Rs. 20 Lakh to help employees save money and make money at once.

This taxation is divided into three categories, as discussed below:

  1. For Government employees (central, state or local) the entire gratuity amount is tax exempted.
  2. For employees covered under the Payment of Gratuity Act, the amount withdrawn for the last 15 days of his employment will be deducted as tax.
  3. For employees not covered under the Payment of Gratuity Act, the least of the following will be deducted as tax:
  • The actual amount of gratuity received
  • Rs. 10 Lakh
  • Salary of each half month for each year of service

How to invest your gratuity?

You can invest the amount received as gratuity in secured funds like a fixed deposit. NBFCs like Bajaj Finance offer FDs with a competitive interest rate of up to 8.70% with a flexible tenor of 12 months to 60 months.

You can use a fixed deposit calculator, which can help you estimate your returns well in advance and manage your finances.

You can apply for your gratuity by submitting an application form in favour of your employer within 30 days from its payable date. In cases where your employer refuses to pay your gratuity, he/she will be subjected to imprisonment for a term anywhere between 6 months and 2 years.

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