Gratuity calculator: ₹2 lakh plus will be available on a salary of ₹45,000. Calculate it from home in a jiffy..

Gratuity Calculation: If you've worked for the same company for 8 years, you can create a fund worth lakhs of rupees through gratuity. Essentially, this is a retirement benefit that everyone receives based on their last salary and service period. A simple formula can easily calculate it.

Gratuity Will Work Wonders
Gratuity is a significant financial benefit awarded by an employer to an employee in recognition of their service. This amount is only available if the employee has worked continuously for at least 5 years. Generally, gratuity is awarded upon leaving a job, retirement, or termination of service. However, in the event of an employee's death or a serious accident, this amount can be directly transferred to their nominee. The purpose of gratuity is to provide financial security for the employee and their family for the future.

What Does the Gratuity Payment Act Say?

Under the Payment of Gratuity Act, 1972, an employee can receive a maximum gratuity of ₹20 lakh. This requires that the employee has worked continuously for at least five years with the same company. However, if an employee leaves the job within four years and 11 months, they cannot receive the gratuity benefit. However, this requirement does not apply in the event of an employee's sudden death or a serious accident. In such cases, gratuity is a recognition of the employee's long service, providing them with strong financial security for the future.

How many years of service are required?
It should be noted that gratuity is a financial benefit that companies provide to their long-serving employees as a mark of respect. To receive it, the employee must have worked continuously for at least five years with the same company. However, if an employee dies or suffers a serious disability, the minimum service period requirement does not apply. According to the Gratuity Payment Act, the maximum limit is set at ₹20 lakh. This amount not only serves as a token of gratitude to the employee but also ensures their future financial security.

How is gratuity calculated?
The gratuity amount is calculated using a fixed formula: last salary × (15/26) × total number of years worked. Let's understand this with a simple example: Suppose you worked for a company for 8 years and your last basic salary + DA is ₹45,000. The calculation would be: ₹45,000 × 15/26 × 8, which totals ₹207,692. This is the amount you will receive as gratuity. This formula provides the employee with the perfect financial benefits based on their years of work.

Understand the meaning of 15/26 in calculations.
Gratuity is calculated based on a 15-day annual salary, with only 26 days of the month considered working days, as the remaining four days are holidays. A key feature is that when calculating service time, one full year is added for more than six months. This means that if an employee has worked for 7 years and 7 months, the period will be considered 8 years. However, if they have worked for 7 years and 3 months, the period will be considered 7 years. This rule determines the gratuity amount.

Employee Gratuity Formula
According to the Gratuity Payment Act 1972, gratuity payable to employees is divided into two categories: those covered by this Act and those outside the scope of this Act. This includes both private and government sectors. Gratuity for employees covered under this Act is calculated using a fixed formula—last salary × total service period × 15/26. This formula determines that the longer the service, the higher and more equitable the gratuity.

Tax Rules: How Much Tax is Payable on Gratuity?
The tax rules on gratuity are quite clear. The entire gratuity received by government employees is tax-free, but private sector employees (who fall under the purview of the Act) are entitled to a limited exemption. The exemption is available on the lesser of three amounts: a maximum of Rs 20 lakh, or the amount derived from the formula (last salary × 15/26 × years of service), or the actual gratuity. If the gratuity exceeds this amount, the remaining amount is taxable. This amount is added to the individual's other income and calculated according to the applicable tax slab. (Note: This news is based on general information)

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