Urban Money
  • 10 K
  • 1 Cr
Years
  • 5
  • 50

Total Gratuity Payable to You

0

You’re eligible for gratuity after working for 5 years in the same organization

If you have completed 5 years of continuous service in an organisation, you become eligible for receiving the gratuity amount. The Gratuity Calculator helps you determine the gratuity amount you will receive by the end of your tenure. 

To know more about the gratuity such as the eligibility criteria, gratuity calculation, and more, stay tuned!

What is Gratuity in India?

Gratuity is defined as the money paid by the employers to the employees for their continuous service in the organisation for at least five years. Primarily, it’s a token of appreciation employees get for their consistent services to the company.

In India, gratuity is governed under the Payment of Gratuity Act, 1972. According to the gratuity rules, the employee will receive the gratuity money within five years in case they become disabled in an accident or due to a disease.

The gratuity amount particularly depends on the terms of service you have offered to the organisation and the last drawn salary.

Eligibility Criteria for Payment of Gratuity

According to gratuity payment rules, if you want to receive a gratuity, you must meet the following eligibility criteria:

  • The employee must have resigned from the company after five continuous years of service in the organisation.
  • The applicant must have retired from services.
  • An employee can receive the gratuity in case he/she has suffered disability from an illness or accident, or, in case of death. 
  • The employee should be qualified for superannuation or retirement benefits.

What is a Gratuity Calculator?

A gratuity calculator is a device used to determine the gratuity amount. By entering the correct values in their respective fields, you can extract the true value of the gratuity amount the employer will provide you for your continuous services.

Gratuity Calculation – Formula for Calculating the Gratuity

The gratuity amount is calculated in two different ways for different categories:

  1. If the employers are registered under the Gratuity Act
  2. If the employers aren’t registered under the Gratuity Act

A) Computing the Gratuity Amount of Employees Whose Employer Falls under the Gratuity Act

The gratuity calculation formula in such situations would be - 

Gratuity = n x b x 15 / 26

Where ‘n’ is the numbers of years of service in the organization, and

‘b’ is last drawn basic salary plus the dearness allowance

For example– if you have worked with the XYZ company for 8 years and your last drawn basic salary and the DA (Dearness Allowance) was ₹ 80,000. 

Then, the gratuity amount = 15 x 80,000 x 8/26 = ₹ 3,69,231. 

Points to be Noted:

According to the Payment of Gratuity Act, 1972, the gratuity amount can’t go beyond ₹ 20 lakh. Any additional gratuity amount will be considered as ex-gratia. 

If your term in the previous year of employment surpasses six months, then round it off to the nearest figure. Suppose that you have served the organisation for 15 years and 7 months, then you will receive the gratuity for 16 years. However, if your service tenure was 15 years and 4 months, then your gratuity would have been for 15 years. 

B) Computing the Gratuity Amount of Employees Whose Employer Doesn’t Fall under the Gratuity Act

In such conditions, the gratuity amount calculation is done taking into account the half-month salary on each year of service you have completed.

The formula for computing the gratuity amount in such cases would be -

Gratuity = (15 x Your last drawn salary x the working tenure) / 30.

For example, you earn a basic salary of ₹ 50,000 and you have offered a continuous service of 9 years and the employer doesn’t fall under the Gratuity Act. Therefore, 

Gratuity Payment = (15 x 50,000 x 9) / 30 = Rs 2,25,000. 

Benefits of Using Urban Money Gratuity Calculator

Urban Money’s Gratuity Calculator is an easy-to-use computing device that allows you to enter your basic salary and the number of years you have served. In turn, it offers you an estimated amount of the gratuity you would get, after five or more years of your service in the organisation. 

The gratuity calculator demonstrates the gratuity amount in seconds. It helps you plan your finances by investing the gratuity in a smart way, so that you can garner the maximum amount of return. 

UrbanMoney’s Gratuity Calculator can be used from the comfort of your home or practically from anywhere. All you need is an internet connection. 

How to Use the Urban Money Gratuity Calculator?

UrbanMoney’s Gratuity Calculator has been designed with an easy-to-use interface. Hence, it's pretty simple to operate it. Follow the steps below to know how to use our calculator:

Step 1: Enter the last drawn salary, including the basic salary and dearness allowance. 

Step 2: Enter the total term or years of service with the company. 

Step 3: Click on the 'Submit' button.

Step 4: UrbanMoney’s Gratuity Calculator will display the gratuity amount payable in seconds.  

Step 5: Follow similar steps to recompute the gratuity anytime by simply putting different values in the basic salary and number of years of service fields. 

Taxation Rules for Gratuity

According to recent amendments in the Payment of Gratuity Act, 1972, the least of the following categories is exempt from the tax:

  • The actual gratuity received;
  • ₹20 lakhs (which has been increased from ₹10 lakh as per the new amendment);
  • The last salary (basic + dearness allowance) multiplied by the number of years of tenure x 15/26.

Let us consider an example to understand this clearly. 

Assume that your last drawn salary is ₹3 lakh per month, which includes the basic plus the dearness allowance. You served the company for 7 years and 7 months. Therefore, you are eligible to get a gratuity amount of ₹13, 84, 615. 

Now let us understand the tax exemption taking into account both previous and new gratuity rules

Particulars Earlier After Amendment
Last drawn salary (basic + DA) ₹ 3 Lakh ₹ 3 Lakh
Number of Years 7 will be rounded off to 8 7 will be rounded off to 8
Gratuity 3,00,000*8*15/26 = ₹ 13, 84, 615. 3,00,000*8*15/26 = ₹ 13, 84, 615.
Maximum exemption allowed ₹ 10 lakhs ₹ 20 lakhs
Actual Gratuity Received ₹ 13 lakh ₹ 13 lakh
Amount of exemption (least of the above) ₹ 10 lakh ₹ 13 lakh
Taxable gratuity ₹ 6 lakh No taxable amount

Note:

  • The number of years of service or the total tenure is rounded off to the nearest full year.
  • The previous 10 months’ average salary is considered. 

Which OrganiSation/Industry is Eligible for Gratuity?

Under the Payment of Gratuity Act, 1972, the following industries/organisations with 10 or more employees are supposed to pay gratuity:

  • Railway companies
  • Factories
  • Mines
  • Oilfields
  • Ports
  • Plantations
  • Shops and other establishments. 

Income Tax & Exemptions on Gratuity

The gratuity received by the following entities are completely exempted without any upper monetary limit:

  • Defence forces
  • Employees of municipalities
  • Government municipalities

Under the Payment of Gratuity Act, 1972, the gratuity up to the minimum payable limit for employees other than the aforesaid is tax-free. Therefore, if the employee receives gratuity more than the 15 days of each completed year of service, the additional gratuity shall be taxable regardless of the overall amount of gratuity. 

To determine the salary for 15 days, the salary drawn by the employee during the ten months just before the date when the gratuity becomes due has to be considered. 

Where Should One Invest the Gratuity Amount Received?

Gratuity is a handsome amount of money employees receive after completing a service of specific tenure in an organisation. Therefore, it wouldn't be wiser to spend all the money in one place. So, what should you do? 

Should you keep it in your savings account or invest it somewhere? 

Firstly, decide whether you will need the money for five years or can you do without it for several years? 

The best option would be diversification. You can keep some of it for your personal use and invest the rest in SIPs, mutual funds, and the equity market. 

If you already have investment experience, then you are good to go. Otherwise, you can have some expert opinions. Whatever you do, make sure that you have done the research first, or you might end up losing all your money. 

Gratuity Calculations in Case of Death of Employee

The gratuity amount for a deceased employee is determined based on his/her service tenure. The amount is subject to a maximum of ₹ 20 lakhs. Given below are the rates at which gratuity will be paid in such cases. 

Tenure Amount payable
<1 year 2 x Basic salary
1 – 5 years 6 x Basic salary
5 – 11 years 12 x Basic salary
11 – 20 years 20 x Basic salary
20+ years Half of the basic salary for each completed 6 months subject to a maximum of 33 x Basic salary.

For instance, the basic salary of the deceased was ₹ 70,000 per month and he served the organisation for 8 years. Then the gratuity payable to him would be-

Gratuity = 12 x ₹ 70,000 = ₹ 8,40,000. 

Types of Forms under the Gratuity Act

There are various types of forms a gratuity applicant can file depending on the situation. Those are as follows:

Form Name Time Period
Form A Notice of Opening
Form B Notice of Change
Form C Notice of Closure
Form I Application for the payment of gratuity
Form J Used by the nominee to make an application for payment of gratuity
Form K Used by legal heir to make an application for the payment of gratuity
Form F To make nomination
Form G To make fresh nomination
Form H Modification of Nomination
Form L Issued by the Employer to the employee stating amount and date of payment
Form M Issued by the employer stating the reason for the rejection of gratuity
Form N Application made to the labour commission by an employee
Form O Issued by the authority to appear for case hearing
Form P Summons issued by the authority to be present for hearing
Form R Issued by the authority directing to make gratuity payment

Things You Should Remember before Availing Gratuity

If you have already planned to withdraw your gratuity, you must ponder on a few things mentioned below:

  • You have completed 5 years of continuous service in the same organisation.
  • You must submit a duly filled application form for availing of gratuity.
  • If the applicant has died, only the nominee can avail of the gratuity. 
  • On the demise of the original gratuity holder, the nominee doesn’t need to wait for the gratuity until 5 years.

Frequently Asked Questions (FAQs)

How can I calculate my gratuity?

Gratuity can either be calculated using Urban Money’s gratuity calculator online, which is the simplest method of all or you can use the gratuity formula.

What is 26 in gratuity calculation?

In gratuity calculation, 26 is the number of working days.

How is gratuity calculated manually?

To calculate gratuity manually, you can use the gratuity formula, which is – Gratuity = n x b x 15 / 26, where n is the number of years of service in the organization and b is the last drawn basic salary plus the dearness allowance.

What is the rule of gratuity?

According to the rules of gratuity, organisations having more than 10 employees on a single day in the preceding 12 months are entitled to pay gratuity.

What is basic salary pay?

Basic salary is the base income employees receive before any increases due to bonuses or overtime or reductions, allowances (communication allowance or internet usage for those who work from home).

How to calculate a basic salary?

Use the following formula to calculate a basic salary. 

Basic salary = Gross pay- total allowances (medical insurance, HRA, DA, conveyance, etc.)

What is the gratuity calculation formula?

The gratuity calculation formula is – 

Gratuity = n x b x 15 / 26

Where n = numbers of years of service in the organization

b = last drawn basic salary + dearness allowance

Is the nomination facility available for gratuity?

Yes. The nomination must be made by an employee within 30 days of the completion of one year of service.