Gratuity Calculator
If you are employed in a private company that offers EPF benefits, you are eligible to receive a gratuity after 5 years. In case of an accident or illness, you might be eligible for gratuity even before 5 years....Kotak Life Insuranceoffers an online gratuity calculator to help you figure out how much your company owes you. The gratuity calculator is an essential tool for employees to estimate their potential gratuity payout and plan for their future.Read more
Monthly Salary (Basic + DA)
No. of Years Of Service
What is a Gratuity Calculator?
A Gratuity 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. You can use this calculator in your retirement calculator to measure the amount of gratuity.
What is the Formula for Gratuity Calculation?
It is important to calculate your gratuity amount so that you can get a fair estimate of the amount expected. The formula for calculating gratuity varies depending on whether the employee is covered under the Gratuity Act or not.
Employees covered under the Act
- n= tenure of service completed in the company
- b= last drawn basic salary + dearness allowance
- 26 = the projected number of working days in a month, and
The gratuity calculation is accounted for at the rate of 15 days' wages.
For employers not covered under the Gratuity Act
In both cases, "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.
It is important to note that the maximum amount of gratuity payable is currently capped at ₹20 lakhs in India.
What is Gratuity?
A gratuity is a form of monetary benefit provided by an employer to an employee in recognition of the employee's long and meritorious service. It is typically paid upon retirement, resignation, or death and is governed by specific laws and regulations in many countries, including India, where the Payment of Gratuity Act 1972 governs it.
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.
How to Use the Kotak Life's Gratuity Calculator?
Kotak Life’s Gratuity Calculator is an easy-to-use calculator. You can use it without anyone's help. You can use the Kotak Life’s Gratuity Calculator by following these 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 compute the total gratuity amount owed to you.
You can also adjust the input anytime to recalculate the gratuity.
Instant gratuity calculation occurs as you move the sliders.
Benefits of Using the Kotak Life's Gratuity Calculator
With advanced techniques, online calculators have become popular. To calculate gratuity online, you can use Kotak Life’s 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 Kotak Life’s Gratuity Calculator ensures accurate and precise calculations, reducing the likelihood of errors.
Time-Saving
By using Kotak Life’s Gratuity Calculator, employers and employees can save time by quickly obtaining accurate results without the need for manual computations.
Convenience
Kotak Life’s 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, Kotak Life’s 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
Kotak Life’s 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 Kotak Life’s 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 Kotak’s 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
Kotak Life’s 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?
In India, the taxation rules for gratuity are governed by the Income Tax Act of 1961. Here are the key points regarding the taxation of gratuity:
Exemption Limit
Gratuity received by an employee is exempt from income tax up to a certain limit. The exemption limit is determined based on the provisions of Section 10(10) of the Income Tax Act.
Applicability of Gratuity Act
The exemption is applicable to gratuity received by employees covered under the Payment of Gratuity Act, 1972, as well as those not covered under the Act but who receive gratuity as per the terms of their employment contract.
Exemption Calculation
The exemption limit for gratuity is calculated based on the following formula, whichever is the least:
Gratuity = (Last Drawn Salary + Dearness Allowance) × 10 × 15 / 26
Exemption on Actual gratuity
Actual gratuity is calculated on the fifteen days of salary based on the last drawn salary for each completed year of service or part thereof more than six months, subject to a maximum of ₹20 lakhs (effective from 29th March 2018, amended from the previous limit of ₹10 lakhs).
Calculation on Salary
If gratuity is received during the service period (for reasons other than retirement, death, or resignation), the entire amount is taxable as income under the head "Salaries".
Taxation of Excess Gratuity
Any gratuity amount exceeding the exempted limit is taxable as per the employee's income tax slab rate in the year of receipt.
Government Employees
Gratuity received by government employees, including those working in Public Sector Undertakings (PSUs) and statutory corporations, is fully exempt from income tax.
Tax Deducted at Source (TDS)
If the gratuity amount exceeds the exemption limit, the employer is required to deduct TDS at the time of payment as per the applicable income tax rates.
Tax Planning
Employees may plan their gratuity receipts strategically to minimize tax liability, considering factors such as the timing of receipt and the overall taxable income in the relevant financial year.
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 investment is backed by the government.
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 as 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.
Payment of Gratuity
The employer typically does the payment of gratuity to the eligible employee upon the occurrence of certain events specified under the Payment of Gratuity Act, 1972. Here's how the payment process generally works:
Eligibility Determination
According to the Gratuity Act, an employee becomes eligible for gratuity if they have completed at least five years of continuous service with the same employer.
Calculation of Gratuity Amount
The gratuity amount is calculated based on the employee's last drawn salary and the length of their continuous service. The formula for calculating gratuity is usually: (Last drawn salary × 15/26) × number of years of completed service.
Issuance of Notice
When an employee becomes eligible for gratuity, the employer typically issues a notice informing them about their eligibility and the amount of gratuity payable. The notice also specifies the date and mode of payment.
Payment Processing
After the notice is issued and the gratuity amount is calculated, the employer initiates the payment process. The payment can be made either in cash, by cheque, or through electronic transfer, depending on the employer's policies and the employee's preference.
Timing of Payment
The Payment of Gratuity Act stipulates that the gratuity amount must be paid within 30 days from the date it becomes payable. If there is any delay in payment beyond this period, the employer may be liable to pay interest on the delayed amount.
Receipt Acknowledgment
Once the gratuity payment is made, the employer typically obtains a receipt acknowledgment from the employee confirming the receipt of the gratuity amount. This acknowledgment serves as proof of payment and helps in maintaining records.
Tax Deduction
If the gratuity amount exceeds the exempted limit under the Income Tax Act, the employer is required to deduct tax at source (TDS) at the time of payment as per the applicable income tax rates.
Record-Keeping
Both the employer and the employee should maintain records related to the payment of gratuity, including calculation details, payment receipts, and any correspondence exchanged regarding the gratuity payment.
Organizations Eligible for Gratuity
In India, the Payment of Gratuity Act 1972 specifies the organizations and establishments that are eligible to provide gratuity to their employees. The Act covers a wide range of establishments, including:
Factories
Any premises including precincts where manufacturing processes are carried out, with the aid of power or without the aid of power, where the number of employees regularly employed exceeds ten.
Mines
Any premises including precincts where operations relating to the extraction of any mineral are carried out, with the aid of power or without the aid of power, and where the number of employees regularly employed exceeds ten.
Oilfields
Any premises including precincts where operations related to the exploration or production of mineral oil are carried out, with the aid of power or without the aid of power, and where the number of employees regularly employed exceeds ten.
Plantations
Any agricultural or horticultural operation that includes the cultivation of tea, coffee, rubber, cinchona, cardamom, vines, or any other plant and where the number of employees regularly employed exceeds ten.
Ports and Docks
Any premises where loading, unloading, movement, or storage of goods in or on any vessel is carried out and where the number of employees regularly employed exceeds ten.
Railway Companies
Any establishment or administrative or other department of a railway company (as defined in the Railways Act, 1989) where the number of employees regularly employed exceeds ten.
Shops and Establishments
Any commercial, trading, banking, insurance, or any other establishment where individuals are employed or engaged for hire or reward and where the number of employees regularly employed exceeds ten.
Educational Institutions
Any educational institution, including schools, colleges, universities, or other educational establishments, whether conducted by the government, a local authority, or any other person and where the number of employees regularly employed exceeds ten.
Other Establishments
Any other establishments or class of establishments employing ten or more persons as may be notified by the appropriate Government on this behalf.
It's important to note that the applicability of the Payment of Gratuity Act depends on the number of employees regularly employed in the establishment. Once an organization meets the criteria specified under the Act, it becomes obligated to provide gratuity to its eligible employees as per the provisions of the Act.
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