Gratuity Calculator

The amount of gratuity for employees whose company is covered under the Gratuity Act can be calculated using the formula:

Gratuity = n x b x 15 / 26n = Tenure of service completed in the company
b = Last drawn basic salary + dearness allowance For example, you have worked with the ABC company for a period of 10 years. Your last drawn basic salary along with dearness allowance was Rs 35,000. Hence:The amount of gratuity = 10 x 35,000 x 15 / 26 = Rs 2,01,923

• As per the Gratuity Act, the amount of gratuity cannot be more than Rs 20 lakh.
• If the number of years you have worked in the last year of employment is more than six months, then it will be rounded to the nearest figure. Suppose your tenure of service is 16 years 7 months, then you receive the gratuity for 17 years. Otherwise, its for 16 years if it happens to be 16 years 4 months.
• For employees whose company is not covered under the Gratuity Act, the gratuity amount would be calculated as per the formula:
  Gratuity = n x b x 15 / 30n = Tenure of service completed in the company
  b = Last drawn basic salary + dearness allowance
  For example, you have a basic salary of Rs 30,000. You have rendered continuous service of 7 years and the company is not covered under the Gratuity Act.
  The amount of gratuity = 30,000 x 7 x 15 / 30 = Rs 1,05,000.

In India, gratuity is tax-free up to a certain limit under Section 10(10) of the Income Tax Act. Amount exceeding this limit is subject to tax. The taxes applicable to the gratuity amount depends on the type of employee:

• The gratuity amount received by any government employee is exempt from the income tax.
• For private-sector employees, the least of the following three amounts will be exempt from income tax provided that the company is covered under the Payment of Gratuity Act,
  • The actual gratuity you received: This is the exact amount you got from your company when you left.
  • The eligible gratuity: This is the amount you're entitled to based on your salary and the time you worked.
  • Rs 20 lakh: This is the maximum amount you can claim as tax-free gratuity in your entire career.

Note: Your employer can willingly pay you more than your eligible gratuity amount, as a token of appreciation for your service.

• Your actual gratuity is less than the eligible gratuity and Rs 20 lakh, you'll pay no tax on the entire amount.
• The eligible gratuity is less than the actual gratuity and Rs 20 lakh, you'll pay no tax on the eligible gratuity but extra amount that you receive will be taxable.
• Rs 20 lakh is the least, you can only claim that amount as tax-free.

• Employees who have completed at least 5 years of continuous service with the same company & have resigned
• Employee should have retired from service
• In case of death the gratuity is paid to the nominee, or to the employee on disablement on account of a sickness or an accident.