Gratuity Calculate : Determine Your Bonus Eligibility:
Are you unsure of how much gratuity you are eligible for? You can use GTS’s Gratuity Calculator to find out if you qualify and how much you might be eligible for. A gratuity is a one-time payment given by an employer to a worker as a thank you for their services; this usually occurs when the worker retires or resigns.
What Is Gratuity?
A gratuity is a one-time payment given by an employer to a worker as a thank you for their services. It is usually given when the worker departs the company, either because they have retired, resigned, or passed away. The Payment of Gratuity Act, 1972, which is applicable to businesses with ten or more employees, governs it.
What is a Gratuity Calculator?
A gratuity calculator is an online tool designed to help employees determine the gratuity amount they are entitled to receive when leaving a company, whether due to retirement, resignation, or other circumstances. Under the Payment of Gratuity Act of 1972, gratuity benefits are not available to all employees; only those who have completed a minimum of five years of service with the organization are eligible.
However, if an employee becomes disabled due to an accident or illness, they may be entitled to gratuity before completing five years of service.
The gratuity amount is determined based on the employee’s final salary and the number of years they have worked for the company. If you are planning to leave your job or retire, the gratuity calculator can give you an estimate of how much gratuity you will receive.
The gratuity is calculated using the following formula:
Gratuity=15×Last Drawn Salary×Years of Service26\text{Gratuity} = \frac{15 \times \text{Last Drawn Salary} \times \text{Years of Service}}{26}Gratuity=2615×Last Drawn Salary×Years of Service
This formula considers the employee’s last drawn salary, the number of years worked, and a standard factor of 15/26, which reflects the entitlement to 15 days’ salary for each year of service.
Benefits of Using the GTS Gratuity Calculator
User-Friendly Design: The GTS Gratuity Calculator is simple and easy to use, requiring only the most basic data, such as your total years of service and your most recent earned income.
Quick Estimates: The calculator provides a quick estimate of the gratuity amount you might be eligible for after five or more years of continuous service.
Instant Results: This tool saves you a great deal of time and work by producing results quite instantly.
The calculator can help you better organize your finances by allowing you to make well-informed decisions on how to invest and manage your gratuity for the best possible returns.
The ease of accessibility: The gratuity calculator is a useful tool for quick and simple calculations, regardless of whether you’re at home or on the go.
Formula for Gratuity Calculation Central Government Employees and Private Employees in India
The gratuity amount for both central government employees and private employees can be calculated using the following formula:
Gratuity (G) = N * B * 15 / 26
Gratuity Eligibility in India for Employees
To be eligible for gratuity in India, employees must meet certain conditions as outlined by the Payment of Gratuity Act, 1972. The eligibility criteria for gratuity payments are as follows:
Superannuation: The worker should qualify for benefits under this plan. According to the company’s retirement policy, this usually applies to workers who retire or depart the company.
Retirement or Resignation: You must either retire or resign from your position after serving your time with the organization. Usually, a gratuity is given when you retire or leave the company voluntarily after a predetermined number of years.
Minimum 5 Years of Continuous Employment:You must have worked continuously with the same employer for a minimum of 5 years. This is a key requirement for gratuity eligibility. If you leave the company before completing 5 years, you are generally not entitled to receive gratuity unless certain exceptions apply.
Gratuity for Death or Disability:If the employee passes away during employment or becomes permanently disabled due to an illness or accident, they or their legal heir (nominee) will still be entitled to gratuity, even if they have not completed 5 years of service.
Income Tax Exemption on Gratuity
Gratuity received by an employee is generally taxable as income under the head “Income from Salary” as per the Income Tax Act, 1961. However, there are certain exemptions available for gratuity, which help reduce the taxable amount. Below are the key tax exemptions related to gratuity:
Exemption Limit for Gratuity
The maximum exemption limit for gratuity is ₹20 lakhs.
This exemption limit was increased from ₹10 lakhs to ₹20 lakhs with effect from 29 March 2018.
Section 10(10) Tax Exemptive
The Income Tax Act of 1961’s Section 10(10) exempts gratuities from taxes. The following formula is used to determine the exempt gratuity amount:
For workers covered by the Payment of Gratuity Act of 1972, each completed year of service, or a portion of it exceeding six months, is worth 15 days’ compensation (based on the most recent wage received).
oFor workers who are exempt from the Payment of Gratuity Act, 1972: Half a month’s average pay (calculated by averaging the previous ten months) for each year of service, or a portion of it beyond six months.
Taxable Gratuity Amount
Any gratuity amount exceeding the exempted limit of ₹20 lakhs will be taxable as income under the head “Income from Salary”.
What Is the Maximum Gratuity Limit in India?
The maximum gratuity limit in India is ₹20 lakhs, as per the Payment of Gratuity (Amendment) Act, 2018. This limit was increased from ₹10 lakhs to ₹20 lakhs with effect from 29 March 2018.
Gratuity Amount up to ₹20 Lakhs: Any gratuity amount received by an employee up to ₹20 lakhs is exempt from tax, provided it meets certain conditions outlined in the Income Tax Act.
Gratuity Amount Exceeding ₹20 Lakhs: Any gratuity amount exceeding ₹20 lakhs will be treated as income from salary and will be taxed accordingly.
This revised limit allows employees to receive a larger amount as tax-exempt gratuity upon retirement or service termination, making it a beneficial provision for long-serving employees.
India’s Gratuity Percentage in 2023
In India, gratuity payments to employees are governed under the Payment of Gratuity Act, 1972. The Act states that the period of continuous service with the company and the employee’s most recent drawn wage are used to determine the gratuity. The following is how the gratuity is calculated:
Gratuity Percentage: For each full year of service, or a portion of a year longer than six months, the gratuity amount is computed as 15 days of the employee’s most recent drawn salary.
Gratuity Calculation Formula:
Gratuity=(Last Drawn Salary×15×Years of Service/26)
Where:
Last Drawn Salary = Basic Salary + Dearness Allowance (DA)
Number of Years of Service = Completed years of service with the employer
15 = Gratuity days for each completed year
26 = Number of working days in a month (for daily wage calculation)
This formula helps calculate the gratuity entitlement for employees who have worked for 5 or more years with the same employer. Gratuity is generally paid when an employee retires, resigns, or in case of death or disability during employment.
Where Can One Invest the Lump Sum Gratuity Amount Received?
To maintain financial stability after receiving a lump sum gratuity, it’s critical to invest it prudently. Consider the following investing options:
Fixed Deposits (FDs): For a set period of time, fixed deposits give a guaranteed return at a preset interest rate, making them a safe and secure investment choice. For conservative investors looking for capital protection, FDs are the best option because they are low risk.
Public Provident Fund (PPF):
PPF is a long-term, tax-saving investment scheme backed by the government. Contributions to a PPF account are eligible for tax benefits under Section 80C, and the interest earned is tax-free. PPF is considered a secure investment with a long-term horizon (15 years).
Mutual Funds: These investment vehicles combine the capital of multiple participants to purchase a diverse range of stocks, bonds, and other securities. Various mutual fund categories exist according to risk tolerance:
High-risk, high-return funds that invest in equities are known as equity funds.
Bonds and fixed-income securities are investments made by lower-risk funds known as debt funds.
A combination of debt and equity for a balanced risk and return is known as a hybrid fund.
National Pension System (NPS): This government-sponsored pension plan aids in retirement savings. The investment may consist of a combination of government securities, corporate bonds, and stock, and the returns are contingent on the success of the market. Additionally, it offers tax advantages under Section 80C.
Real Estate: Buying real estate can lead to long-term capital gain as well as steady rental income. Although it requires a greater initial commitment and is a relatively stable investment, it is less liquid than other possibilities.
Stocks: Individual stock investments can yield larger profits for those prepared to assume greater risk. However, thorough research and knowledge of market dynamics are necessary for stock market investing. Since it’s a high-risk, high-reward method, prudence is advised.
Every investment option has a unique profile of risk and reward. Financial objectives, investment horizon, and risk tolerance should all be taken into consideration before making an investment decision. Diversifying the gratuity amount over several investing options may be a smart move for better risk-adjusted and balanced returns.
How to Use the GTS Gratuity Calculator?
Using the GTS Gratuity Calculator is simple and straightforward. Follow these steps to quickly determine your gratuity:
- Enter Basic Pay & Dearness Allowance: Input your last drawn salary (including dearness allowance, if applicable) using the slider.
- Enter Years of Service: Add the number of years you have worked with the company.
- Get Instant Calculation: The calculator will instantly display your estimated gratuity amount.
- Recalculate as Needed: Adjust the sliders to change inputs and instantly recalculate the gratuity.
The GTS Gratuity Calculator is an easy tool for quickly determining your gratuity based on your salary and years of service.
How Can a Gratuity Calculator Help You?
In many circumstances, a gratuity calculator can be extremely helpful, particularly if you fit the requirements outlined in the Payment of Gratuity Act of 1972:
– You’re getting close to retirement.
– You have worked for the same company continuously for at least five years.
– You don’t have any other full-time jobs planned.
A gratuity calculator can help you in the following ways:
– Accurate Calculation: Using your income and years of service, it assists you in figuring out the precise amount of gratuity that is due to you.
– Saves Time and Effort: You save time and resources by avoiding manual computations and lowering the possibility of errors.
– Convenience: Planning your finances is made simple by the calculator’s home accessibility.
Why Choose GTS for Gratuity Amount Calculation?
- Expert Guidance: Our legal experts provide end-to-end support, guiding you through the entire gratuity calculation process.
- Hassle-Free Service: We handle all the paperwork and application forms on your behalf, relieving you of any stress or complexity.
- Convenient Online Process: The entire process is online, and you can easily calculate your gratuity using our free Gratuity Calculator
- Data Security: Rest assured, your personal data and information are completely safe and secure with us.
- Responsive Support Team: Our support team is always available to assist you with any questions or concerns you may have.
With GTS, you get a seamless, secure, and expert-driven approach to calculating your gratuity, making your financial planning stress-free.
FAQ
Gratuity is determined using a formula that takes into account an employee’s last drawn salary and the number of years they have served with the employer.
The gratuity is calculated using the formula:
Gratuity = (Last drawn salary) × (15/26) × (Years of service).
Here, “last drawn salary” includes basic salary and dearness allowance, and “years of service” refers to the total number of completed years with the employer.
No, a tip is not subtracted from a worker’s pay. When an employee retires, resigns, or passes away, the employer will usually give them a separate lump sum payment as a thank you for their service. The sum is determined using the worker’s years of service and pay.
The choice of investment for gratuity funds depends on your personal financial objectives, risk tolerance, and investment horizon. To determine the best options for you, it’s advisable to consult with a financial advisor.
No, a gratuity is not the same as a provident fund (PF). Both the company and the employee make contributions to the PF, a long-term retirement savings plan, and the total amount is distributed upon retirement. On the other hand, a gratuity is a one-time payment given by an employer to a long-serving employee, usually after five years of employment with the same company.