Gratuity is an amount that you, as an employee of an organisation, receive when you leave an organisation for reasons such as retirement. The Gratuity is not given to every employee. The Payment of Gratuity Act, 1972 has set some rules for paying the gratuity amount. You are eligible for Gratuity only when you complete five or more years of employment in an organisation.
Gratuity rules state that employees may be paid a gratuity amount before completing five years of employment if the employee is injured and has become disabled due to an accident or disease. The amount of Gratuity receivable by you is dependent on your last drawn salary and the total years of services rendered by you in that organisation.
So, suppose you are planning to leave the job or looking forward to your retirement. In that case, you can use the gratuity calculator to calculate the estimated amount you'll receive in your Gratuity.
The gratuity calculator will calculate the estimated gratuity amount based on the gratuity calculation formula. To calculate the gratuity amount, you would need to input the basic last drawn salary and the tenure of the current service with the organisation. Your final drawn salary will accumulate your primary salary, dearness allowances, and the commissions you would have received through the sales.
The gratuity rules say that there are two main categories to determine the calculation- one for the Employees covered under the Act and the second for the Employees who are not covered under the Gratuity Act.
1) For Employees covered under the Act:
The Gratuity calculation formula that you can use to calculate the Gratuity amount is:
Gratuity = n*b*15/26
n denotes the tenure of service an employee has completed in the organisation.
b denotes the last drawn salary plus dearness allowance.
For instance, you have worked with an XYZ organisation for a total of 15 years. Consider your last basic salary, including the dearness allowance, was Rs. 40,000. So, therefore:
The amount of Gratuity = 15 × 40,000 × 15 / 26 = 3,46,153
Two points are must be noted that:
According to the Gratuity Act, the Gratuity amount cannot be more than Rs. 20 Lakhs. The excess Gratuity amount will be considered as ex-gratia.
While calculating the tenure of service, if you have completed more than six months from your previous date of joining, then it is considered a completed year for the calculation of Gratuity. So, for example, if you have worked for 15 years and seven months, you will receive the gratuity amount for 16 years. But if you have worked for 15 years and five months, then the Gratuity will only be counted for 15 years.
2) For Employees not covered under the Gratuity Act:
Even if the organisation is not covered under the Gratuity Act, the employees would still receive the Gratuity amount. But the number of days will be changed from 26 to 30 days.
The Gratuity calculation formula is:
Gratuity = (15 × last drawn salary × working tenure)/30.
For instance, if you have worked for a company for seven years, the organisation is not covered under the Gratuity Act. And your basic salary was Rs. 35,000.
Gratuity Amount = (15 × 35,000 × 7) / 30 = 1,22,500.
How can a Gratuity calculator help you?
The Gratuity calculator comes in handy in several ways, a few of which are mentioned below:
How to use the ICICI Gratuity calculator?
Using the ICICI Gratuity calculator is simple. The calculator does most of the work for you, all you need to do is enter the right data. Enter the following key data points to determine your Gratuity value.
Once you have entered all required data the calculator will reflect the estimated Gratuity value you will receive from your employer almost instantly.
Tax implications applicable to Gratuity
Like any other corpus amount you receive, tax implications apply to your Gratuity value as well. The tax applicable to you depend on the type of employer you are working for. There are two types of employers in India – government and private sector. Taxation rules differ for both.
If you are working for a government employer, the Gratuity you will receive is 100% tax-exempt.
If you are working for a private sector employer least of the following three amounts will be tax-exempt, given that your employer comes under the Payment Gratuity Act:
You can claim tax exemption only up to Rs 20 lakh on your Gratuity value in your professional life. You cannot exceed the maximum taxation limit.
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No, you must complete at least five years of service at an organisation to be eligible to receive Gratuity.
Payment of Gratuity Act states that an employee is entitled to a gratuity upon the termination of employment if he has worked for the organisation for at least five years. As a person working on a contract, you will not receive a gratuity from the organisation.
The upper limit for payment of Gratuity is Rs. 20 lacs for government employees and Rs. 10 lacs for non-Government employees.
Under Section 53 of the Insolvency and Bankruptcy Code (IBC), provident fund, pension, and Gratuity obligations are not part of the corporate debtor's liquidation estate and cannot be included in the assets to be liquidated to settle creditors' claims. As a result, even if your employer goes bankrupt, the Gratuity will be paid. No court order can prevent the Gratuity amount from being paid.
As per the government Gratuity rules, the employer releases the Gratuity amount within 30 days from the final settlement date of an employee.
Employees who have completed the minimum period of 5 years with an organisation only are eligible for the Gratuity. As the Gratuity is considered as a loyalty benefit given to an employee by the employer.
You must make a Gratuity nomination within 30 days after completing one year of employment under the Payment of Gratuity Act, 1972. your 'family members' only can be nominated, and if you do not have 'family' members, then you may nominate anyone to receive the Gratuity. To do so you are required to fill and submit the Form 'F'.
Only individuals who have completed 5 years of service with an organisation are eligible for Gratuity. However, Gratuity is typically paid at the time of retirement and at the time of leaving the employment. the Gratuity may also be paid in the event of unforeseen circumstances such as the death of an employee.
With the recent amendment, the amount of Gratuity is tax-free up to Rs.20 lakh, as opposed to the previous limit of Rs.10 lakh set by Section 10(10) of the Income Tax Act.
Even if business of the organisation isn't doing well financially, it must pay the Gratuity to the eligible employees. They cannot refuse to pay Gratuity for the reason of "financial losses.".
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