Calculating Your Retirement Gratuity: A Step-by-Step Guide

The amount paid by the employer to the employee ( for his services) is known as the gratuity. But regular employees generally get this amount only after five years of service, while fixed-term employees qualify after one year. Gratuity is now governed by the Code on Social Security, 2020, which subsumed the Payment of Gratuity Act 1972.

However, there is a possibility to get your gratuity amount before five years of employment. If an employee gets disabled due to an accident or a disease. Gratuity mainly depends on the last salary withdrawn. It also depends on the years of service rendered to the company.

Eligibility criteria for Gratuity:

There a certain criteria that individuals must meet to be eligibility criteria

1. One must be eligible for superannuation
2. Individuals must have retired from the service.
3. Individuals should have resigned after five years of employment with the company.
4. If the employee is unfortunately disabled due to an accident, he is eligible for payment gratuity.
5. In case of the death of the employee, the nominee is eligible for the payment of Gratuity.

What is a Gratuity Calculator?

The Gratuity Calculator helps to calculate the Gratuity amount. It uses the formula for calculating the Gratuity.

The Gratuity Calculator gives individuals an estimate of the amount that they will receive on quitting their jobs. However, they must have rendered their service for continuous five years. The Gratuity Calculator is a tool that makes the calculation of Gratuity much more convenient on your retirement from the company.

How to calculate Gratuity using a Gratuity Payment Calculator?

The process of calculating gratuity is very simple and you just need to input the last drawn salary along with the tenure of continuous service with the company. Individuals must remember that their last drawn salary includes their, basic salary the dearness allowance, along the commission they received from the sales.

The Gratuity Calculator will help you find the gratuity amount immediately and can be used many times.

These are the steps you must follow to use a Gratuity Calculator.

Firstly enter the basic salary and dearness allowance using the slider. Secondly, enter the tenure of service

And the Gratuity Calculator will immediately calculate the amount for you.

What is the gratuity formula?

Gratuity = 15 * your last drawn salary * tenure of working / 26

• If you are the employee under the employee who is covered by the gratuity Act can be calculated using the formula

Gratuity = n* b*15 /26

In this formula n = tenure of service in the company. And b represents the last drawn basic salary + dearness allowance

For example, an individual has worked for ABC company for 17 years. His last drawn basic salary + dearness allowance was Rs. 30000. Therefore the amount of Gratuity will be as follows 153000017/26 i.e. Rs 2,94,231.

There are two main things :

According to the Gratuity Act, the amount of Gratuity should not be more than 20 lakhs.

• If there's an excess amount it will be taken as ex-gratia. If an individual has worked more than six months in the last year it will be rounded off to the nearest figure. For instance, if the individual has worked for 15 years and 7 months then it will be calculated as 16.

• If your employer is not covered under the Gratuity Act, the gratuity amount would be calculated differently. It will be calculated as per the half-month salary on each completed year of service.

The formula, in this case, will be : ( 15 * your last drawn salary * the working tenure /30)

Suppose an individual has a basic salary of Rs 30000. He has served continuously for 7 years and the employer is not covered under the Gratuity Act. Then the gratuity will be calculated as follows. :-

Gratuity amount= ( 15 * 30000 * 7) /30= Rs. 105000

What are the taxation Rules for gratuity?

Tax treatment of the Gratuity varies from employee to employee who has received the Gratuity.

• The government employee ( central/state/local authority) is exempt from income tax.
• A private employer who is under the Gratuity Act. His employee will have the following tax benefits.

1. If the Gratuity amount is less than 20 lakh.
2. The actual amount of Gratuity received.

The calculation of Gratuity is not merely a math formula, it is a crucial part of financial planning. If you go through the guide you'll easily understand the Gratuity calculation method and make up your mind accordingly. For more details visit our website PensionBox. You can also use our gratuity Calculator for accurate results. Thus take a step towards a retirement plan that fills your life with prosperity and peace.