Gratuity Calculator
Know your Gratuity!
Gratuity calculators are indispensable tools for employees’ benefits, offering a quick and easy way to estimate the gratuity they're entitled to upon exiting a company. These calculators take into account an individual's salary and years of service. By demystifying the calculation process, gratuity calculators empower employees to plan their finances effectively, ensuring they fully understand and appreciate the benefits of their years of dedication and hard work.
Gratuity Calculator
Taxable Gratuity :
Taxable Gratuity
Exempt Gratuity
Total Gratuity
Gratuity Received during the tenure of employment is always Fully Taxable.
Gratuity Received by central government employee at the time of retirement is exempt u/s 10(10)(i).
a)Death-cum-retirement gratuity received by Central Govt.Employees/ members of civil services/local authority employees etc.- Fully Exempt u/s 10(10)(i)
b) Other Employees
Covered under the Payment of Gratuity Act, 1972
Least of the following exempt u/s 10(10)(ii):
1) 2000000
2) Actual gratuity received
3)15 days salary (based on last drawn salary) for every completed year of service or part thereof in excess of 6 months
(No. of days in a month to be taken as 26)
Exempt Gratuity u/s 10(10)(ii)
What is Gratuity?
Gratuity in India is a financial reward for employees as a token of appreciation for their long-term service. Under the Payment of Gratuity Act, 1972, employees in certain organizations are eligible to receive gratuity after completing five years of continuous service, with exceptions for cases of death or disability. Gratuity taxation is an important aspect to understand. For example, gratuity is taxable for private employees, but gratuity received by a government employee is fully exempt. The gratuity exemption falls under Section 10(10) of the Income Tax Act, and the gratuity exemption limit for FY 2023-24 is ₹20 lakhs.
Under the new tax regime, many exemptions and deductions have been removed; however, gratuity remains exempt under Section 10(10). Eligible employees can still receive tax relief on gratuity amounts up to the specified limits. For non-government employees, part of the gratuity amount qualifies for tax exemption subject to conditions like the tenure of service and last drawn salary. If you’re wondering, "Is gratuity taxable in India?" or "Is gratuity taxable in the new tax regime?," the answer is that gratuity is tax-free up to the specified threshold but may become taxable if it exceeds the limit.
For tax purposes, gratuity in income tax is treated as gratuity income, and its taxability of gratuity depends on factors like the employee’s tenure and last drawn salary. While TDS on gratuity may apply in some cases, understanding the gratuity exemption section is essential to determine whether the gratuity is tax-exempt or not. Whether the gratuity is taxable on resignation or not also depends on the specific circumstances. Always refer to gratuity taxability rules and consult a tax expert for clarity.
What is a Group Gratuity Scheme?
A Group Gratuity Scheme is a structured plan designed to help employers manage their statutory gratuity obligations efficiently while providing a secure benefit to employees. Under a group gratuity insurance plan, employers pool funds with an insurance provider to ensure seamless gratuity payments when due. These plans, also known as group gratuity schemes for employees, offer a combination of financial security and tax advantages. The group gratuity plan ensures that gratuity liabilities are adequately funded, reducing financial strain on employers. For employees, the gratuity scheme for employees provides a lump-sum benefit upon meeting the eligibility criteria, ensuring long-term financial security. Employers benefit by complying with legal requirements and enhancing employee satisfaction while leveraging the financial expertise of insurance providers.
Understanding Gratuity Eligibility
In India, employees become eligible for gratuity after rendering five years of continuous service to an employer, per the Payment of Gratuity Act of 1972. This act applies to establishments with ten or more employees and includes factories, mines, oilfields, and other entities. However, there are notable exceptions to this rule.
For instance, if an employee cannot complete the service period of five years due to death or disability—whether due to an accident or disease—gratuity is payable. Additionally, completing the service period considers interruptions like strikes, lockouts, or layoffs, ensuring employees are not unfairly disqualified from receiving their gratuity.
How to Calculate Your Gratuity
Calculating the gratuity is a straightforward process that can be done in a few simple steps. Here’s a step-by-step guide:
2
Identify Salary Components:
The last drawn salary is crucial for the calculation. It includes the basic pay plus dearness allowance (DA) and commissions on sales.
4
Calculate the Amount:
-
Multiply your last drawn salary by 15. (salary of last 15 days of a working/completed month )
-
Divide the result by 26. (working days are assumed to be 26)
-
Multiply this figure by the total number of years you’ve served.
5
Consider the Ceiling:
The maximum gratuity amount cannot exceed ₹20 lakh. Any amount above this is considered ex-gratia.
1
Determine Eligibility:
An employee must have completed at least five years of continuous service, as this is the primary criterion for gratuity eligibility under the Payment of Gratuity Act of 1972.
3
Apply the Gratuity calculation Formula:
The standard formula used is:
Gratuity = Last drawn salary ✕ 15/26 ✕ number of years of service
6
Round Off the Service Period:
If you’ve worked for more than six months in the last year of your employment, it’s rounded off to the next full year for gratuity calculation.
For example,
If your last drawn salary (basic + DA) is ₹30,000 and you’ve served for 15 years, your gratuity would be calculated as follows:
Gratuity = 30,000×15/26×15
Gratuity = ₹2,59,615
Remember,
If the tenure of service is 15 years and seven months, for the gratuity calculation, it will be considered 16 years. This step-by-step guide ensures you can easily calculate your gratuity and understand the financial benefits upon retirement or resignation.
Gratuity Calculator Tool
Simplify Your Gratuity Calculations!
Are you tired of manually crunching numbers to determine gratuity amounts? Look no further! Tax Buddy online gratuity calculator is here to revolutionize how to calculate tips and bonuses.
Benefits of using a Gratuity Calculator:
-
Effortless Accuracy: Say goodbye to mental math errors. Our tool ensures precise calculations every time.
-
Time-Saving: No more scribbling on receipts or searching for percentages. Enter basic details, and voilà!
-
Customizable: Adjust variables like service quality, tenure, and salary to tailor results to your needs.
-
Accessible Anywhere: Use it on your phone, tablet, or desktop—no downloads required.
Tax Implications on Gratuity
A gratuity is a form of monetary benefit provided by the employer to the employee for the services rendered during the period of employment. The tax treatment of gratuity differs for government and private sector employees. For government employees, the gratuity received is fully exempt from income tax. On the other hand, for private sector employees, the exemption on gratuity is subject to certain conditions under the Income Tax Act. Per the Gratuity Tax Rules, the least of the following three amounts is exempt from tax:
-
actual gratuity received,
-
15 days' salary based on the last drawn salary for each completed year of service or
-
Rs 20 lakh.
Any gratuity received over and above the least of these three amounts is taxable. Therefore, while the gratuity is a substantial financial benefit for the employee, it is crucial to understand its tax implications. The Rs 20 lakh limit is a significant aspect of the gratuity tax rules, as it sets the maximum amount that can be received tax-free under the current legislation. It's always recommended to consult with a tax advisor to understand the specific tax implications based on individual circumstances.
Maximizing Tax Benefits
Maximizing tax benefits on gratuity involves strategic financial planning.
-
Start by understanding the tax rules applicable to your employment type.
-
If you’re in the private sector, remember the exemption clause and an amount over and above the three amounts (gratuity, 15 days' salary based on the last drawn salary, and Rs. 20 lakhs).
-
Any amount received above this is taxable.
-
-
Consider investing the excess in tax-saving instruments.
-
Regularly review your salary structure and negotiate with your employer to include more tax-exempt components, like gratuity.
-
Lastly, consult a tax advisor to understand the nuances of gratuity taxation and make informed decisions. Remember, effective management of gratuity can lead to substantial tax savings.
.png)
Frequently asked questions
Q
What is gratuity, and who is eligible for it?
A
Gratuity is an employer's monetary benefit to an employee for the services rendered. It’s paid to employees who have completed five or more years with the company.
Q
How is gratuity calculated in India?
A
In India, gratuity is calculated using the formula:
Gratuity = (Last drawn salary * 15/26) * Number of years of service,
The last drawn salary includes the basic salary and dearness allowance.
Q
Can I use an online calculator to calculate gratuity?
A
Yes, you can use an online calculator to calculate gratuity. These tools estimate the gratuity amount based on your last drawn salary and the tenure of service.
Q
What are the tax implications of receiving gratuity?
A
The tax exemption on gratuity is the least of the following three:
actual gratuity received,
15 days' salary based on the last drawn salary for each completed year of service or
Rs 20 lakh. Any amount received over this limit is taxable.
Q
Is gratuity mandatory for all employers in India?
A
Gratuity is mandatory for all employers in India if the organization employs ten or more individuals. Even if the number of employees reduces to under 10, the organization is still liable to pay gratuity.
Q
How does tenure of service impact gratuity calculation?
A
The tenure of service directly impacts the calculation of gratuity. The longer an employee serves with an organization, the higher their gratuity payout will likely be.
Q
What happens to gratuity if an employee dies before retirement and an employer denies gratuity?
A
If an employee dies before completing five years of service, the gratuity amount is still payable to the nominee or legal heir, irrespective of the number of years of service.
Q
How long does it take for gratuity to be disbursed?
A
There are exceptions to the five-year rule for gratuity eligibility. If an employee’s service ends due to death or disablement, they are eligible for gratuity, irrespective of completing a year.
Q
Are there any exceptions to the five-year rule for gratuity eligibility?
A
There are exceptions to the five-year rule for gratuity eligibility. If an employee’s service ends due to death or disablement, they are eligible for gratuity, irrespective of completing five years.
Q
What is gratuity insurance, and how does it benefit employers?
A
Gratuity insurance is a financial plan offered by insurance providers to help employers meet their statutory gratuity obligations. It ensures that funds are readily available to pay gratuity when it becomes due, providing both financial security and operational ease for employers.
Q
How does a group gratuity plan work?
A
A group gratuity plan is designed for organizations to pool funds with an insurance provider to cover future gratuity payments for employees. Employers contribute regularly to the fund, and the insurer invests the contributions, ensuring sufficient reserves to meet gratuity liabilities.
Q
What is the tax treatment of group gratuity schemes?
A
Under a group gratuity scheme, employers can claim tax benefits on the contributions made to the gratuity fund. For employees, the gratuity received is subject to tax exemptions under Section 10(10) of the Income Tax Act, depending on the applicable limits.
Q
Can a group gratuity scheme be customized for employees?
A
Yes, a group gratuity scheme for employees can be tailored to suit an organization’s specific needs. Factors such as employee eligibility, contribution structure, and additional benefits can be customized to align with the company’s policies and objectives.
Q
How does a group gratuity insurance plan ensure compliance with gratuity laws?
A
A group gratuity insurance plan helps employers stay compliant with the Payment of Gratuity Act, 1972, by systematically funding gratuity liabilities. The plan ensures that gratuity obligations are met without burdening the employer’s cash flow, even in cases of sudden liabilities.