Gratuity Calculator India - Calculate Your Gratuity Amount Online

How Gratuity is Calculated in India

What is Gratuity?

Gratuity is a monetary benefit given by an employer to an employee as a token of appreciation for services rendered to the organization. It is a lump sum payment made at the time of retirement, resignation, or termination, provided certain conditions are met.

Gratuity Calculation Formula

For employees covered under the Payment of Gratuity Act 1972, the formula is:

Where:

• Last Drawn Salary = Basic Salary + Dearness Allowance (last drawn before leaving)
• Years of Service = Total completed years of service (rounded to nearest year if 6+ months)
• 15 = Number of days' salary for each completed year of service
• 26 = Number of working days in a month (excluding Sundays)

Note: For employees in seasonal establishments, the number 26 is replaced by the actual number of working days in a month for that establishment.

Eligibility for Gratuity

To be eligible for gratuity under the Payment of Gratuity Act 1972:

• The employee must have completed at least 5 years of continuous service with the same employer
• The Act applies to establishments with 10 or more employees
• Gratuity is payable on retirement, resignation, death, or disablement
• In cases of death or disability, the 5-year minimum service requirement is waived

Maximum Gratuity Amount

As per the Payment of Gratuity Act 1972 (amended), the maximum gratuity amount that can be paid is capped at ₹20 lakhs. This limit was increased from ₹10 lakhs in 2010.

Tax Implications of Gratuity

• Government Employees: Gratuity received is fully exempt from income tax
• Private Sector (covered under Act): Gratuity up to ₹20 lakhs is tax-exempt. Amount exceeding ₹20 lakhs is taxable as salary income
• Private Sector (not covered): Gratuity exempt up to certain limits based on years of service and salary

When is Gratuity Payable?

Circumstances for Gratuity Payment

Gratuity becomes payable in the following situations:

• Retirement: Upon superannuation or retirement from service
• Resignation: When an employee voluntarily resigns after completing 5 years of service
• Termination: When employment is terminated by the employer (except in cases of misconduct)
• Death or Disablement: In these cases, gratuity is payable even if 5 years are not completed

Timeline for Payment

As per the Payment of Gratuity Act:

• Gratuity must be paid within 30 days from the date it becomes payable
• If not paid within 30 days, the employer must pay simple interest on the delayed amount
• In case of death, gratuity is paid to the nominee or legal heir

Forfeiture of Gratuity

Gratuity can be fully or partially forfeited if:

• The employee's services are terminated due to any act of willful omission or negligence causing damage or loss to the employer's property
• The employee's services are terminated for riotous or disorderly conduct or any act of violence
• The employee's services are terminated for an offense involving moral turpitude, provided such offense is committed in the course of employment

Frequently Asked Questions (FAQ)