This Gratuity Calculator lets you calculate Gratuity Tax Exemption. Gratuity is the amount of payment made by an employer to an employee in appreciation of the past services rendered by the employee, which is received at the time of retirement or in the event of death. The maximum gratuity tax exemption that an employee can avail of is Rs. 20,00,000.
It is the amount received by the salaried person from their employer as a mark of recognition for their long-term service to the organization. An employee who has worked in an organization for a minimum period of 5 years is eligible for gratuity.
But not everyone is aware that gratuity is part of our salary. Gratuity is a reward paid by the employer to Employee for services rendered by him. In simple words, it is a retirement benefit received by an employee when he leaves his job.
An employee who completed 5 or more years of service is eligible for gratuity. This condition of 5 years of service is not applicable in case of death or any disability of an employee.
After completing five years of continuous service, you will be eligible to receive the gratuity benefit. It is payable:
Gratuity received by you on your retirement or during your service period is taxable under the head "Income from Salary. In case of the death of an employee, Gratuity will be paid to the legal heir/nominee of an employee which is taxable under the head” Income from other sources".
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Gratuity is taxable when it is received under the head Income from salary. An employee can claim an exemption maximum of up to Rs. 20,00,000. However, the calculation of gratuity varies according to various categories of employees as follows:
You can use our free Gratuity calculator to calculate your exemption amount.
Categories |
Tax treatment |
|---|---|
| Government employee | Fully Exempt |
| Non-government employee covered under Payment of gratuity act 1972 |
Least of the following:
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| Non-government employee not covered under Gratuity Act 1972 | Maximum exemption from tax –
Least of the following:
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No, an employee will be eligible for gratuity only if he serves for at least 5 years in the same company. However, there is a Madras high court ruling which states that an employee is eligible for gratuity only if he completed 240 days in the fifth year.
Tenure of 5 years of service is not applicable in case of death or any disability of an employee. Still confused? Need an expert's opinion? Contact us
An employer has a right to forfeit gratuity in case an employee is being terminated due to misconduct or any other act of violence.
All establishments where 10 or more workers are employed on any day of the preceding 12 months are covered under this act.
Both commercial and non-commercial establishments like hospitals and educational institutes are covered under the act.
Yes, Contractual employees are also eligible for gratuity. A contractor is responsible for paying gratuity to employees. In case the Contractor denies it, responsibility arises on the principal employer.
The employer is responsible for determining the gratuity and paying the same within 30 days of the gratuity becoming payable.
After completing one year of service, an employee is eligible to file a nomination in Form F. Download Form F
Employees have to serve at least 5 years of service to be eligible for gratuity: Employees who have completed 5 years of service in the same company are eligible for gratuity. However, the condition is not applicable in situations like the death or disablement of an employee.
The laws says that employees who have worked for a full year get 15 days of pay as gratuity, but not more than ₹10 lakh in total. However, seasonal workers get 7 days of pay for each season as gratuity. The gratuity amount is calculated as 4.81 percent of the basic salary according to the Payment of Gratuity Act 1972.
Retirement gratuity is calculated based on a specific formula in India. The formula for calculating retirement gratuity is as follows:
Gratuity = (Last Drawn Salary + Dearness Allowance) × Number of Completed Years of Service × 15 / 26
The numbers 15 and 26 in the gratuity formula pertain to the factors used for calculating gratuity in India. Gratuity is a statutory benefit provided to employees by their employers as a form of recognition and appreciation for their long and meritorious service. The formula for calculating gratuity is as follows:
Gratuity = (Number of years of service) × (Last drawn salary + Dearness Allowance) × 15 / 26
Here's the breakdown of the numbers:
So, when you calculate gratuity, you consider 15/30 to represent half a month and 26/30 to represent a full year's worth of working days. These factors are used to determine the gratuity amount based on the length of service and the last drawn salary of the employee.
Yes, gratuity in India is typically calculated based on the employee's basic salary and dearness allowance (DA) components. The formula for calculating gratuity is as follows:
Gratuity = (Last Drawn Salary + Dearness Allowance) × Number of Completed Years of Service × 15 / 26
In this formula, "Last Drawn Salary" refers to the basic salary and dearness allowance that the employee was receiving at the time of retirement or resignation. These components are used to determine the gratuity amount, with the assumption that the employee's contribution to these components increases with the length of service.
To calculate gratuity for 10 years of service in India, you can use the following formula:
Gratuity = (Last Drawn Salary + Dearness Allowance) × 10 × 15 / 26.
