Online Gratuity Calculator For 2024 (With Formula & Example) (2024)

Monthly basic salary

Dearness allowance (DA)

Joining month in current org.

Gratuity is a lumpsum payment made by an company to it's employee as a token of gratitude for their services provided to the company. It is a form of social security benefit provided to employees when they retire, resign, or are laid off after completing 5 years of continuous employment. The payment is intended to provide financial assistance to employees upon their departure from the organization. An employee is eligible to get the gratuity before five years in the case of disablity due an accident or a disease.

The Payment of Gratuity Act, 1972, governs the rules and regulations related to gratuity in India.

Any person fulfilling the following eligibility criteria can receive gratuity:

• The individual must be eligible for superannuation.
• The individual must have resigned from the job after working for 5 years continuously
• On death or disablement due to accident or disease of the full-time employee, an exception is made to the five years criteria
• In case of death of the employee, the nominee or beneficiary is eligible to receive the amount

A gratuity calculator can help you determine the gratuity amount you are liable to receive. This estimated amount can help you plan your financial goals like retirement or fund other big expenses in advance. Since calculating the gratuity amount manually can be a tedious process, it is easier to take the help of the online gratuity calculator to estimate this sum.

There's a standard gratuity formula that an employer uses to determine an individual's gratuity. Various factors like the years of service and the most recent salary are considered while calculating the gratuity. Please note that the gratuity amount varies from person to person, as the pay scale of each employee is not the same. The ET Money Gratuity calculator gives a detailed gratuity amount calculation within a few seconds.

The employee's period of service plays a significant role in the gratuity amount calculation. For example, if employee Mr. ABC has worked for 15 years and 8 months, his total number of service years will be rounded off to 16 years. Anything above 6 months gets rounded off to the next number. On the other hand, if employee Mr. XYZ has worked for only 15 years and 4 months, his service tenure will be counted as 15 years. Once this is calculated, it is easy to arrive at the gratuity amount.

But before we get to the details of the gratuity formula, understand that employers are categorized into two types based on their coverage under the Gratuity Act, 1972. The types are given below.

Type 1: Employers covered under the Act
Type 2: Employers not covered under the Act

1. For employers covered under the Gratuity Act: (with 10 or more employees)

In this case, you can calculate gratuity using the following formula:

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

For example, let us assume that the number of years of service is seven years, and the last drawn salary along with dearness allowance accounts for ₹1 Lakh. In that case, the gratuity calculation formula in India will work as the following:

Gratuity = 15 x 7 x 1,00,000 /26 = ₹4,03,846

2. For employers not covered under the Gratuity Act:

In this case, the amount of gratuity would be calculated as per the half-month salary on each completed year of service. you can calculate by using the following formula:

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

Considering the above example, the gratuity amount will be the following:

Gratuity = 15 x 7 x 1,00,000 x 15 / 30 = ₹3,50,000

If the employer doesn't fall under the Gratuity Act, it is not liable to pay gratuity money to its employees. However, if the employer wants to pay, the gratuity amount is based on half a month’s basic salary for each year that has passed.

ET Money's Gratuity calculator can help you calculate the gratuity amount in two scenarios:

1. 5 Years Completed

• Enter the basic monthly salary and the dearness allowance (if applicable) in the respective fields
• Enter the joining date in the current organisation. This is to calculate the number of working years in the firm
• Click on the 're-calculate' button
• The ET Money's gratuity calculator would estimate the gratuity amount in seconds
• You can check the gratuity amount adjusted against different inflation rates by selecting the respective toggle option
• You have the option to change the input numbers and re-calculate this amount anytime

2. 5 Years Not Completed

• Enter the basic monthly salary and the dearness allowance (if applicable) in the respective fields
• Enter the joining date in the current organisation to calculate the number of working years in the firm
• Click on the 're-calculate' button
• The calculator would estimate the gratuity amount in seconds
• Since the gratuity amount changes basis your annual increment, you can also check the amount depending on various increment scenarios by selecting respective toggle buttons
• You can change the input numbers and re-calculate this amount anytime

• A gratuity calculator helps you determine the exact amount the employer owes you for your service to the company
• The calculator saves the hassle of manual calculation
• You can check the gratuity amount as many times as you want and use multiple combinations
• This can also help you plan your financial goals

ET Money is one of the most reliable platforms offering personal financial solutions. This online gratuity calculator has various advantages:

• It assures of data security
• It is an easy and convenient way to estimate gratuity
• It eliminates human error as the online calculation automatically does it on the website

The gratuity amount is taxable, but certain tax exemptions are provided under the Income Tax Act. The taxable gratuity amount is considered 'Income from Salary' while filing the income tax returns. The tax exemption rules vary from employee to employee depending on the category of the employer and their coverage under the Gratuity Act.

If you are a government employee, you can avail full tax exemption on the entire gratuity amount. If you are a non-government employee covered under the Gratuity Act, you can avail tax exemption on the minimum of the following:

• The limit of ₹20 lakh (maximum limit notified by the Government, amended from the earlier ₹10 lakh)
• Last drawn Basic Salary x No. of years of service x 15/26
• Actual gratuity received

However, if your employer is not covered under the Gratuity Act, you can avail tax exemption on whichever is the least:

• Half month's average salary x completed years of service
• Maximum up to ₹20 Lakh gratuity
• The entire gratuity amount received

Gratuity is a lump sum amount paid to employees at their retirement or termination of employment at any time after the completion of five continuous years of service.

The Govt of India has not defined any amount for gratuity payment but it is usually based on certain criteria mentioned below:

• Last monthly or basic salary withdrawn at the time of resignation or termination of employment
• The number of years of service

Employers with 10 or more employees are eligible under the Payment of Gratuity Act 1972. The organizations covered under the act are:

• Every factory, mine, oilfield, plantation, port, or railway company
• Every shop or establishment within the meaning of law wherein 10 or more people are employed on any day of the preceding 12 months (as State Govt specify)
• Every shop or establishment within the meaning of law wherein 10 or more people are employed on any day of the preceding 12 months (as Central Govt specify)
• Every shop or establishment governed by the Gratuity Act whose number of employees has fallen below 10 after becoming eligible

Investing your gratuity amount involves considering various options that align with your financial goals, risk tolerance, and investment horizon. Here are some common choices to invest your gratuity amount:

• Fixed Deposits (FDs): Fixed deposits with banks or post offices are low-risk options that offer guaranteed returns. They provide capital preservation and are suitable for individuals who prefer safety over higher returns.
• Public Provident Fund (PPF): PPF is a tax-efficient, long-term investment option with a lock-in period of 15 years. It offers tax benefits under Section 80C of the Income Tax Act and is a popular choice for retirement savings.
• Employee Provident Fund (EPF): If you're transitioning to a new job, you can choose to transfer your gratuity funds to your EPF account. EPF provides safety and tax benefits and is designed for retirement savings.
• National Pension System (NPS): NPS is a voluntary, long-term retirement savings scheme that offers tax benefits. It allows you to invest in a mix of equity and debt instruments, offering the potential for higher returns.
• Equity Mutual Funds: Equity mutual funds invest in stocks and can provide potentially higher returns over the long term. You can choose from various categories of mutual funds based on your risk tolerance and investment horizon.
• Debt Mutual Funds: Debt mutual funds primarily invest in fixed-income securities like bonds and offer stable returns with lower risk compared to equity funds.
• Sovereign Gold Bonds (SGBs): SGBs allow you to invest in gold in a paperless form and offer tax benefits. They have a fixed tenure and interest rate.
• Real Estate: Real estate can be a viable option, either through direct property purchase or indirectly through Real Estate Investment Trusts (REITs).
• Stock Market: If you have a good understanding of the stock market and are willing to take on higher risk, you can consider investing directly in stocks or equity shares.
• Bank Recurring Deposits (RDs): RDs offer regular savings and are suitable for individuals who want to invest a fixed sum of money every month.

Remember that diversifying your investments across various asset classes can help manage risk. Additionally, consider factors like liquidity needs, taxation, and inflation when making investment decisions. Regularly review and adjust your investment portfolio as your financial situation and goals change.