Gratuity Calculator
(Calculate the gratuity amount basis the years of service)
A gratuity calculator is an online tool that helps you estimate the gratuity amount you will receive after working with a company for a minimum of five years. If you are wondering how to calculate gratuity, this tool simplifies the process by requiring just your most recent salary and years of service. It then applies the gratuity formula to determine your payout. This calculator is especially useful for employees in private organizations, offering better clarity on the financial benefits they can expect upon retirement or resignation. ... Plan ahead and understand your post-employment benefits effortlessly. Use our gratuity calculator now to calculate gratuity online in just a few simple steps! Read more
Monthly Salary (Basic + DA)
No. of Years Of Service
Planning ahead is key to financial success. Gratuity benefits your retirement, but pension plans provides a guaranteed income stream for your golden years, no matter what.
Secure your RetirementWhat is Gratuity?
Gratuity is a monetary reward that is paid by the employer to an employee in appreciation of their services rendered to the organization. It is a one-time lump-sum payment made upon resignation, retirement, or in certain situations where the employee is disabled. To qualify, the worker is required to serve the company for a minimum of five years under continuous employment. There are situations where gratuity can be given prior to the five-year mark. For example, if an employee becomes sick or is disabled due to an accident.
In India, gratuity is governed by the Payment of Gratuity Act, 1972. The amount received depends on factors such as the employee’s last drawn salary and total years of service. This benefit serves as a financial cushion, offering long-term employees a well-deserved reward for their commitment and loyalty.
What is a Gratuity Calculator?
A gratuity amount calculator is a tool used to determine the amount of gratuity payable to an employee based on various factors such as the length of service and the last drawn salary. The calculation of gratuity for private employees is important for future planning of retirement and keeps their finances on track even after they are not working.
Formula for Gratuity Calculation
It is important to calculate your gratuity amount so that you can get a fair estimate of the amount expected. Before we get to the formula, it is important to note that employers fall into two categories:
- Employers Covered Under the Gratuity Act (companies with 10 or more employees, or as per the latest provisions in the 2025 budget).
- Employers Not Covered Under the Gratuity Act (companies with fewer than 10 employees).
The formula for gratuity calculation differs for both categories:
1. For Employers Covered Under the Payment of Gratuity Act, 1972
- n = tenure of service completed in the company
- b = last drawn basic salary + dearness allowance (DA)
Here, 26 represents the projected number of working days in a month, subject to any revisions in the 2025 budget.
Example:
Mr. X worked for 8 years in a company covered under the Gratuity Act. His last drawn salary (basic + DA) was ₹1,50,000.
Gratuity = (8 × 1,50,000 × 15) / 26 = ₹ 6,92,308
2. For Employers Not Covered Under the Payment of Gratuity Act, 1972
Gratuity = (n × b × 15) / 30
- n = tenure of service completed in the company
- b = last drawn basic salary + dearness allowance (DA)
Here, 30 represents the total days in a month.
Example:
Mr. Y worked for 10 years in a company that is not covered under the Gratuity Act. His last drawn salary (basic + DA) was ₹2,00,000.
Gratuity = (2,00,000 × 10 × 15 ) / 30 = ₹ 10,00,000
Key Points to Remember:
- Gratuity is only payable after completing at least five years of service, except in cases of disability due to illness or accident.
- "Last drawn salary" refers to the average of the basic salary, Dearness Allowance, and commission received (if any) during the last ten months of employment.
- the maximum gratuity amount payable is capped at ₹25 lakhs in India for government employees.
How to Use the Gratuity Calculator?
Gratuity calculator is an easy-to-use tool that helps you estimate your gratuity amount without any assistance. You can use gratuity calculator in India by following these simple steps:
- Input your basic salary and Dearness Allowance (if applicable) using the slider.
- Enter the number of years you have served with the company.
- The calculator will instantly compute the total gratuity amount owed to you.
- You can adjust the input anytime to recalculate the gratuity as needed.
- The tool ensures instant and accurate calculations as you move the sliders.
Benefits of Using the Gratuity Calculator
With advanced techniques, online calculators have become popular. To calculate gratuity online, you can our gratuity calculator. This calculator offers several benefits for both employers and employees, helping you mitigate financial complexities when calculating gratuity amount:
Accuracy
Gratuity calculations can be complex, involving various factors such as years of service, last drawn salary, and applicable rules and exemptions. The Gratuity Calculator ensures accurate and precise calculations, reducing the likelihood of errors.
Time-Saving
By using Gratuity Calculator, employers and employees can save time by quickly obtaining accurate results without the need for manual computations.
Convenience
Gratuity Calculator is user-friendly and accessible online. Employees can easily determine their gratuity entitlement by entering basic information, such as years of service and last drawn salary, without the need for specialized knowledge or assistance.
Transparency
Standing by its core principle of transparency, Gratuity Calculator provides transparent and standardized calculations based on established rules and formulas. This promotes transparency in the gratuity payment process, ensuring that both employers and employees understand how the gratuity amount is determined.
Scenario Analysis
Gratuity Calculator allows users to perform scenario analysis by inputting different variables such as years of service and expected salary increments. This enables employees to assess the impact of various factors on their gratuity entitlement and plan accordingly.
Compliance
By using Gratuity Calculator, you can ensure compliance with statutory requirements regarding gratuity payments. This helps mitigate the risk of non-compliance and potential legal consequences.
Employee Empowerment
Providing employees access to Gratuity Calculator empowers them to manage their financial planning and retirement goals proactively. Employees can estimate their gratuity benefits and make informed decisions about their careers and financial future.
Cost-effective
Our Gratuity Calculator is available free of charge. Employers can leverage these tools to streamline the gratuity calculation process without incurring significant expenses.
What are the Taxation Rules for Gratuity?
The taxation of gratuity in India is governed by the Income Tax Act of 1961, and depends on the type of employment.
- For Government Employees: Gratuity received by central, state, and local government employees is fully exempt from income tax. This includes employees of Public Sector Undertakings (PSUs) and statutory corporations.
- For Private Sector Employees (Covered Under the Payment of Gratuity Act, 1972): The tax-exempt portion of gratuity is calculated based on the provisions of Section 10(10) of the Income Tax Act. The exemption is determined by the lowest of the following three amounts:
- For Private Sector Employees (Not Covered Under the Gratuity Act): The least of the following are exempt from tax:
- If Gratuity Exceeds the Exempted Limit: Any gratuity amount received beyond the exemption limit is taxable as per the employee's income tax slab for that financial year.
- Gratuity Received During Employment: If an employee receives gratuity while still in service (not due to retirement, resignation, or disability), the entire amount is taxable as part of their salary income.
- Tax Deducted at Source (TDS): If the gratuity exceeds the exempted limit of ₹20 lakh (as per the Union Budget 2025), the employer deducts TDS at the applicable tax rate before making the payment.
- Tax Planning for Gratuity: Employees can strategically plan their gratuity receipts by considering their total taxable income in the relevant financial year to minimize tax liability.
₹20 lakh (lifetime exemption limit).
(Last drawn salary + Dearness Allowance) × 15 × Number of years of service / 26.
Last 10 months’ average salary (basic + DA) × number of years of employment × ½.
₹20 lakhs.
Gratuity actually received.
How Can a Gratuity Calculator Help You?
A gratuity calculator is a useful tool for employees who want to estimate their gratuity amount accurately. If you are wondering how to calculate gratuity amount, this tool simplifies the process by applying the required formula instantly.
In such cases, a gratuity calculator can be beneficial in several ways:
- Accurate Estimation: It provides a precise calculation of the gratuity amount you are entitled to receive.
- Time-Saving: It eliminates the need for manual calculations, saving you time and effort.
- Convenience: You can use it anytime, anywhere, from the comfort of your home.
- Financial Planning: Knowing the expected gratuity amount helps in better retirement and long-term financial planning.
What are the Eligibility Criteria for Payment of Gratuity?
Gratuity is an important aspect of employee benefits and is designed to provide financial security and recognition for long-term service rendered by employees. Eligibility Criteria for Payment of Gratuity:
- Completion of Service: The employee must have completed a minimum period of service with the employer, usually five years.
- Termination of Employment: Gratuity is payable upon termination of employment due to retirement, resignation, death, or disablement (due to accident or illness).
- Covered Establishments: The Payment of Gratuity Act applies to establishments with 10 or more employees, though some states in India have reduced this threshold to establishments with as few as five employees.
Gratuity Amount Investment Options
Once an individual receives gratuity, they may consider various investment options in India to utilize the funds effectively and meet their financial goals. Here are some investment options that can be considered:
Fixed Deposits (FDs)
Fixed Deposits offer a stable and predictable return on investment. They are considered relatively safe and can be opened with banks or Non-Banking Financial Companies (NBFCs). FDs offer various tenures and interest rates, allowing investors to choose based on their preferences.
Public Provident Fund (PPF)
PPF is a long-term investment option with a lock-in period of 15 years. It offers attractive interest rates and tax benefits under Section 80C of the Income Tax Act, and the government backs the investment.
Equity Mutual Funds
Equity mutual funds invest in stocks, offering the potential for higher returns over the long term. Investors can choose funds based on their risk appetite and investment horizon. Systematic Investment Plans (SIPs) allow regular investing with smaller amounts.
National Pension System (NPS)
NPS is a voluntary pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It offers tax benefits under Section 80CCD of the Income Tax Act and provides an option to invest in equity, corporate bonds, and government securities.
Debt Mutual Funds
Debt mutual funds invest in fixed-income securities such as bonds, government securities, and corporate debentures. They offer relatively stable returns and are suitable for investors seeking capital preservation and regular income.
Post Office Monthly Income Scheme (POMIS)
POMIS offers a fixed monthly income to investors for a tenure of 5 years. It provides a guaranteed return and can be a suitable option for investors seeking regular income.
Real Estate
Investing in real estate can offer capital appreciation and rental income over the long term. However, it requires substantial initial investment, and investors should consider factors such as location, market trends, and legal aspects before investing.
Gold
Gold can be considered a hedge against inflation and economic uncertainties. Investors can invest in physical gold (such as jewelry or coins) or gold Exchange-Traded Funds (ETFs) that track the price of gold.
Sovereign Gold Bonds (SGBs)
SGBs are issued by the Government of India and offer a fixed interest rate along with the potential for capital appreciation linked to the price of gold. They have a tenure of 8 years and provide tax benefits.
Senior Citizen Savings Scheme (SCSS)
SCSS is a government-backed savings scheme designed for senior citizens. It offers regular interest income and tax benefits under Section 80C of the Income Tax Act.
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Disclaimers-
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.