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Gratuity Calculator


An employee working for a private organisation offering EPF facilities is entitled to receive gratuity provided the individual has completed five years of service. Nevertheless, if an employee dies or gets disabled, they are eligible to receive a gratuity before completing the five-year service period.

A gratuity calculator helps in calculating the gratuity amount you are entitled to receive by simply giving two inputs: recent salary and the number of service years. Read along to learn more about the calculator, how to use it, benefits, taxation and more.

Gratuity Calculator

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What is Gratuity?

Gratuity is basically a lump sum amount received by an employee from his employer as a token of gratitude for their hard work and contribution to the organisation or company. An employee with employment duration of more than 5 years with a company is eligible for a gratuity. 

However, an employee can be eligible for duration of 5 years if he or she gets disabled due to a disease or an accident. This payment of gratuity is governed by the Payment of Gratuity Act, 1972; it mainly depends on the total years of service and the last drawn salary.

What is a Gratuity Calculator?

A gratuity calculator is an online financial tool that enables us to determine and calculate the amount of gratuity you will receive over the course of your employment. Deriving the estimated amount of gratuity can help you plan your financial goals such as retirement planning or any other major financial objectives accordingly. 

A gratuity calculator removes the hassle of manually calculating the gratuity amount and helps us derive the results within a matter of seconds. To calculate the same, you need to enter your current salary (basic + DA) and the number of service years.

Gratuity Calculation Formula with Example


Gratuity calculation is based on two factors- the number of service years in your current company and your last withdrawn salary. The online gratuity calculator uses a simple mathematical formula to calculate the sum you will receive. 

But before moving on to the formula, it is essential to understand that employers providing gratuity can be categorised into two types: employers covered under the Gratuity Act and employers not covered under the act. The gratuity formula for both categories is different:

The formula for gratuity calculation (covered under the Gratuity Act i.e. companies with 10 employees or more) is:

Gratuity = 15 x last drawn salary x working tenure / 26

Note: Please note that a gratuity calculator shows results for only gratuities which are included in the Gratuity Act.

The formula to calculate gratuity (Not under the Gratuity Act) is:

Gratuity = 15 x last drawn salary x working tenure / 30

Let us understand the two formulae with the help of examples:

1. Gratuity Calculation: For Employers Covered under the Payment of Gratuity Act, 1972

Suppose the last drawn salary of Mr X is Rs. 1.5 lakh along with DA and the total service years is eight. In such a scenario, it will be calculated as:

Gratuity = 15 x 8 x 1,50,000 /26 = Rs. 6,92,308

2. Gratuity Calculation: For Employers Not Covered under the Payment of Gratuity Act, 1972

Suppose the last drawn salary of Mr. Y is Rs. 2 lakh along with DA and the total service years is 10. In such a scenario, it will be calculated as:

Gratuity = 15 x 10 x 2,00,000 /30 = Rs. 10,00,000

How to Use the HDFC Life Gratuity Calculator?

Here is the step-by-step guide for using the HDFC Life gratuity calculator:

1

Navigate to the HDFC Life gratuity calculator tool and enter the salary (basic and dearness allowance) using the slider.

2

Then, you will have to enter the total number of service years with the company.

3

The gratuity calculator will instantly show you the gratuity amount.

4

You can always play around by moving the slider to get different results and plan your finances and goals accordingly.

Benefits of Using a Gratuity Calculator

There are certain advantages of using an online gratuity calculator, which are as follows:

  • Ensuring data security

    It helps in ensuring data security.

  • Estimating gratuity

    It provides a simple and convenient method for estimating gratuity.

  • Hassle free online calculation

    It removes the hassle of manual calculation and minimises the risk of human error, as the online calculation is automatic and pre-programmed.

What Are the Taxation Rules for Gratuity?

The applicable taxation rules for gratuity depend on the employee type, which are as follows:

1

Any government employee receiving the amount of gratuity is exempted from tax. It is applicable to any government employee be it state, central or local authority.

2

Any private employee whose employer is covered under the act, the least of three amounts will be exempted from tax.

 

  • - Rs. 20 lakh.
  • - Eligible amount of gratuity.
  • - Amount of gratuity actually received.

How Can a Gratuity Calculator Help You?

Here is how a gratuity calculator can be useful to you:
  • Key

    It helps in determining the exact amount owed to you.

  • Key

    Saves your valuable time and other resources.

  • Key

    It is accessible from the convenience of your home and comes free of cost.

  • Key

    It helps in preparing a long-term financial plan.

How Can a Gratuity Calculator Help You

What Are the Eligibility Criteria for Payment of Gratuity?

Listed below are the following eligibility criteria to receive a gratuity payment:

  • You must qualify for superannuation.
  • You have retired from employment.
  • Resignation is also applicable after maintaining continuous employment for five years with a certain company.
  • In the event of death, gratuity is disbursed to the nominee or to you in the case of disability due to an illness or an accident.

To sum up, a gratuity is a payment made by the employer to employees for their hard work and contributions made to the company. A gratuity calculator can help you calculate the gratuity amount enabling smooth long-term financial planning.

However if an employer does not fall under the Payment of Gratuity Act, it is not mandatory for the employer to make a gratuity payment. However, it remains one of the most lucrative job perks that employees look for. 

FAQs about Gratuity Calculator

1 Is the gratuity calculator free to use?

Yes, the gratuity calculator is absolutely free to use and does not have any charges associated with it.

2 I resigned from my job after working for 4.5 years. Am I eligible for gratuity?

If you have resigned from your after working 4.5 years, you will not be eligible for gratuity. Completion of 5-year employment is a must in order to be eligible for gratuity. However, gratuity can be paid before the completion of 5 years in case of disablement or death.

3 Does an individual need to complete five years of continuous service for gratuity?

Yes, an individual must complete five years of continuous service in order to become eligible for gratuity.

4 How long does it usually take for the employer to release the gratuity amount?

Gratuity disbursement duration can vary from employer to employer. However, according to the act, the employer is liable to pay out the gratuity amount in full within 30 days of application.

5 Where should you invest your gratuity funds?

You can invest your gratuity fund in numerous asset classes such as equity, debt, real estate, commodities, etc. Your risk tolerance and expected returns will also determine where to invest. For example, you can invest in stocks and equity funds if you have a high-risk appetite and are looking for high returns. 

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Disclaimers

This material has been prepared for information purposes only, should not be relied on for financial advice. You are requested to seek tax advice from Chartered Accountant or personal advisor with respect to liabilities under the law

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