Gratuity in India: A Complete Guide
Gratuity is a monetary benefit given by an employer to an employee for the services rendered to the organization. It is a defined benefit plan paid at the time of retirement, resignation, or death. Governed by the Payment of Gratuity Act, 1972, it serves as a financial reward for long-term service. Typically, an employee becomes eligible for gratuity after completing five continuous years of service with the same company.
Why Use a Gratuity Calculator?
Calculating gratuity involves specific formulas defined by law, which include factors like your last drawn salary and total tenure. A manual calculation can be prone to errors, especially when rounding off tenure. Finzony's Gratuity Calculator helps you:
- Precision: Uses the exact 15/26 factor mandated by the Gratuity Act.
- Tenure Rounding: Automatically handles the logic where service > 6 months is rounded up to the next year.
- Financial Planning: Helps you estimate the lump sum you will receive upon leaving a job, aiding in retirement or transition planning.
- Instant Results: No need to hunt for formulas; get your figure in seconds.
Gratuity Calculation Formula
For employees covered under the Gratuity Act, the formula is:
The Formula:
- G(15 × Last Drawn Salary × Tenure) / 26
- GGratuity Amount
- Last Drawn SalaryBasic Pay + Dearness Allowance (DA)
- TenureNumber of completed years of service
- 26Number of working days in a month considered for calculation
- 15Wages for 15 days per year of service
Calculation Example
Suppose you have worked for 10 years and your last drawn monthly salary (Basic + DA) is ₹50,000.
- Tenure: 10 Years
- Salary: ₹50,000
- Gratuity = (15 × 50,000 × 10) / 26
- Total Payable = ₹2,88,461
How to Use Finzony’s Gratuity Calculator?
- Enter Salary: Input the amount of money you are starting with (Present Value).
- Set Interest Rate: Use the slider to set the expected annual return percentage.
- Determine Period: Choose the number of years you intend to keep the money invested.
- View Result: The calculator instantly computes the maturity value and the total interest earned.
Taxation Rules for Gratuity
- Government Employees: Gratuity received is fully exempt from tax.
- Private Sector (Covered by Act): Tax-exempt up to ₹20 Lakhs (lifetime limit). Any amount above this is taxable.
- Rounding Rule: If you worked for 5 years and 7 months, it is counted as 6 years. If 5 years and 4 months, it is counted as 5 years.
Frequently Asked Questions
Is the gratuity calculator free to use?
Yes, Finzony's gratuity calculator is completely free and can be used as many times as needed.
What is the minimum eligibility for gratuity?
You must complete at least 5 years of continuous service with the same employer to be eligible. Exceptions apply in cases of death or disablement.
I worked for 4 years and 10 months. Will I get gratuity?
Generally, no. You strictly need to complete 5 full years. However, some legal precedents suggest 4 years and 240 days might be considered in specific sectors, but 5 years is the standard rule.
Does the calculator work for employees not covered under the Act?
This calculator uses the standard formula for employees *covered* under the Act (15/26). For those not covered, the formula differs slightly (15/30) and calculation is based on average salary of last 10 months.