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How to Calculate Gratuity in India
Gratuity is a retirement benefit that employees are entitled to receive after completing a certain number of years of service. It is a lump sum payment made by the employer as a token of appreciation for the employee’s services. In India, gratuity is governed by the Payment of Gratuity Act, 1972. The act applies to all establishments employing ten or more persons, and it ensures that employees receive their gratuity benefits without any hassles. In this article, we will discuss how to calculate gratuity in India, taking into account the latest amendments to the law.
What is Gratuity?
Gratuity is a fixed sum of money given by an employer to an employee when he leaves an establishment. The money is given to compensate the employee for his work and services. In order to calculate the gratuity, the employer needs to know how much the employee has earned over the previous year.
Refer this table for better understanding about How to Calculate Gratuity in India
| Topic | How to Calculate Gratuity in India |
|---|---|
| Eligibility | Any employee who has completed a minimum of 5 years of continuous service with an organization |
| Calculation Formula | (Last drawn salary X number of completed years of service X 15) / 26 |
| Maximum Limit | Rs. 20 lakhs |
| Taxability | Taxable, but certain exemptions available |
| Payment Schedule | Within 30 days of becoming due or retirement/resignation/death, whichever is earlier |
| Example Calculation | If the last drawn salary is Rs. 50,000 and the employee has completed 10 years of service, gratuity would be: (50,000 X 10 X 15) / 26 = Rs. 2,88,461 |
| Eligibility for 5 years of Service | Assuming last drawn salary is Rs. 40,000, gratuity amount would be: (40,000 X 5 X 15) / 26 = Rs. 1,15,385 |
| Ineligible Duration | Employees who have not completed at least 5 years of continuous service are ineligible for gratuity |
What is a Gratuity Calculator?
This post provides an overview of what a gratuity calculator is.
The Gratuity Calculator would calculate the gratuity amount based on the formula for calculating the gratuity. This tool helps employees to calculate their gratuity amount and can be used to calculate gratuity at any time.
The amount is dependent on the last drawn salary and years of service. Before you can be eligible for payment of gratuity, you have to check how much you can. The online gratuity calculator can help you in that area too.
The gratuity calculator is an easy-to-use online tool that calculates your gratuity based on your employment history. here you can read more about what is Payment of Gratuity Act, 1972
What are the Eligibility Criteria for Payment of Gratuity?
You need to meet the eligibility criteria to receive the gratuity. mentioned below
What are the Taxation Rules for Gratuity?
If you are an employee and your employer gives you a gratuity, you have to pay taxes. Your employer will have to deduct the amount from your salary and pay it to you. Even if you haven’t received the money, you can deduct the amount from your salary.
If you have a taxable salary income of Rs 1.5 lakhs, you would be in the lower tax bracket and the lowest tax-free limit is Rs 2 lakh. If you have a taxable income of Rs 4 lakhs, you would be in the higher tax bracket and the maximum tax-exempt amount is Rs 4 lakh.
Are you still confused Is Gratuity Mandatory in India
What is the gratuity calculator formula?
To calculate your gratuity you can use the below-mentioned gratuity calculation formula 2022
Gratuity Formula: (15 * your last drawn salary * tenure of working) / 26.
Are the temporary or contractual employees eligible to receive gratuity?
Yes, temporary or contractual employees can also be eligible to receive gratuity depending on the terms and conditions of their contract with the employer. The Payment of Gratuity Act, 1972 mandates that all employees who have completed a minimum of five years of service with an organization are entitled to receive gratuity, irrespective of whether they are permanent, temporary, or contractual employees. However, it is always advisable to check the terms of employment to confirm the eligibility criteria for gratuity payment.
Taxation Rules for Gratuity
Depending on the type of employee, the taxes applicable to the gratuity amount may be different.
The income tax does not apply to the gratuity amount received by any government employee. If the employer is covered under the Payment of Gratuity Act, then the lowest of the three amounts will be exempt from income tax.
The maximum tax-exempt gratuity amount an employee can claim in his/her entire professional life can’t exceed Rs 20 lakh.
What are the income tax limitations for gratuity amounts?
According to the recent notification from the Government of India, the income tax relations for gratuity payments have been increased to Rs 30 lakh from the previous limit of Rs 10 lakh.
Is Gratuity Amount taxable in India?
There are certain conditions that must be met in order for gratuity to be exempt from taxation under the Income Tax Act. Employees can be categorized into two categories for taxation.
The amount of gratuity received by an employee is deductible. The entire amount is exempt from tax when it is received after retirement.
FAQs on Gratuity Calculator
How to calculate gratuity amount in India
This post explains how to calculate gratuity amounts in India. We explain the concept of gratuity, the different types of gratuity, and how to calculate it.
How gratuity calculated in India
After at least five years of work in India, you can use the gratuity calculator to calculate the amount that you will receive. To understand the mechanism behind the gratuity calculator, read on, and find out more about the gratuity definition. The Payment of Gratuity Act put into law in 1972
How is gratuity calculated manually?
By using the below-mentioned formula you can easily calculate gratuity
Gratuity = Number of years at work * (Last month’s salary + D.A.) * 15/26,
Gratuity = 13 * ₹4,000 * 15 / 26,
Gratuity = ₹30,000.
How is gratuity calculated in India with example?
Gratuity in India is calculated using the formula: (Last drawn salary X number of completed years of service X 15) / 26. For example, if an employee’s last drawn salary is Rs. 50,000 and they have completed 10 years of continuous service with the organization, their gratuity amount would be: (50,000 X 10 X 15) / 26 = Rs. 2,88,461.
How is gratuity calculated manually?
To calculate gratuity manually, you need to use the formula: (Last drawn salary X number of completed years of service X 15) / 26. Here, the “last drawn salary” refers to the basic salary and dearness allowance (if any) received by the employee. You can then calculate the gratuity amount based on this formula.
Is gratuity taxable in India?
Yes, gratuity is taxable in India. However, there are certain exemptions available under certain conditions, such as if the gratuity amount is received by the employee after his/her retirement or in the event of their death.
How much gratuity will I get for 5 years?
The gratuity amount you will receive for 5 years of continuous service will depend on your last drawn salary. Assuming your last drawn salary is Rs. 40,000, your gratuity amount would be: (40,000 X 5 X 15) / 26 = Rs. 1,15,385.
Is 4 years 7 months eligible for gratuity?
No, an employee is only eligible for gratuity if they have completed a minimum of 5 years of continuous service with an organization. In this case, an employee who has completed only 4 years and 7 months of service would not be eligible for gratuity.
Who is eligible for gratuity in India?
Any employee who has completed a minimum of five years of continuous service with an organization is eligible for gratuity in India.
Can an employee claim gratuity if they have not completed five years of service?
No, an employee is not eligible for gratuity if they have not completed a minimum of five years of continuous service with an organization. However, in case of death or disablement, the eligibility criteria may be waived off.
How is gratuity calculated in India?
Gratuity in India is calculated using the following formula: (Last drawn salary X number of completed years of service X 15) / 26. Here, the “last drawn salary” refers to the basic salary and dearness allowance (if any) received by the employee.
Is there a maximum limit on gratuity in India?
Yes, the maximum amount of gratuity payable in India is Rs. 20 lakhs.
When should an employer pay gratuity in India?
An employer is required to pay gratuity to an employee within 30 days from the date it becomes due or 30 days from the date of the employee’s resignation/retirement/death, whichever is earlier.
