Gratuity Calculator
The gratuity calculator is a tool that helps you calculate the amount that you will receive after at least five years of work in India. It is granted by The Payment of Gratuity Act, put into law in 1972. Read on to find out more about the gratuity definition, and to understand the mechanism behind the gratuity calculator.
What is gratuity?
Gratuity meaning is an amount that an employer is obliged to pay to an employee after at least five years of service. According to this gratuity definition, it may be treated as an additional retirement benefit. A gratuity in India is taxable if it is more than ₹2,000,000.
Am I eligible for a gratuity?
Once you know what gratuity is, the following criteria have to be met based on gratuity definition:
- You should be eligible for superannuation (the retirement benefit offered to the working class);
- You are retiring from the job; and
- You worked for there for at least five full years.
You are also eligible for gratuity in case of death or disablement due to an accident or disease.
Now you know whether or not you are eligible for gratuity, and what it is, you may read the next section to find more details about the calculations.
Gratuity formula
Once you are eligible for the gratuity, and have checked the gratuity meaning, you may start to calculate the amount that you may receive. Maybe you this will even help you decide to go into early retirement! The formula for the calculation is quite simple, just check below!
Gratuity = Number of years at work * (Last month's salary + D.A.) * 15/26
D.A. stands for dearness allowance, - which is an additional compensation paid to cover inflation. D.A. is paid to government employees and pensioners in India, Bangladesh, and Pakistan, making it easier for them to cope with growing prices.
The D.A. calculation is made based on AICPI - All India Consumer Price Index. You may find more details about AICPI on the Labour Bureau website.
Please remember that the number of years has to be rounded to full years! For example, if you have been working for seven years and three months, you have to put seven years into the formula. Don't worry, though, the gratuity calculator will do that for you.
Gratuity example
Imagine you have been working for 12 years and seven months, and now it is time to go into retirement. Your salary after the last month of your service, together with the D.A., is ₹4,000. You can calculate your gratuity based on those values, or use the gratuity calculator. Years of service has to be rounded down, so, in this case, you should use 13 years in the calculation.
Gratuity = Number of years at work * (Last month's salary + D.A.) * 15/26,
Gratuity = 13 * ₹4,000 * 15 / 26,
Gratuity = ₹30,000.
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