What is Gratuity and How To Calculate It?
Gratuity is an amount paid to the employee by their employer in return for the services provided by them. Not every employee is entitled to receive gratuity. Employees who have served the company for 5 years or more receive it. However, one can receive gratuity before 5 years in case the employee gets disabled in an accident or due to a disease. The amount of gratuity received depends on the last drawn salary and the number of years you have worked for the organisation. The rules are set by the Payment of Gratuity Act, 1972. Further in the article, we will learn the gratuity calculator formula in 2022 and other important details regarding it.
What is a Gratuity Calculator?
A gratuity calculator is a tool to find out the amount of gratuity you are entitled to receive. This can help in planning your future finances in case of retirement or if you are planning to quit the job. Various factors affect gratuity calculation. Factors like years of service and the last salary drawn. The amount of gratuity also differs from employee to employee as the salaries of individuals are different.
Advantages of Using a Gratuity Calculator
There are many benefits of using a gratuity calculator in India.
- It helps you in determining the amount your employer owes you for the service provided by you.
- A gratuity calculator takes away the burden of calculating it manually. It saves time and you can do it from the comfort of your home.
- A gratuity calculator also helps in planning your finances and meeting your goals.
Eligibility Criteria for Payment of Gratuity
Certain factors make you eligible for gratuity. You need to meet the following criteria.
- You should be eligible for superannuation.
- You have resigned from the job after working there for 5 years continuously.
- You can receive a gratuity before 5 years of service in some cases. This includes disablement or death in an accident or due to a disease. In case of death, the nominee receives a gratuity.
- You don’t work full-time for any other employers.
Gratuity Calculation Formula 2022
The number of years an employee has worked for the same organisation plays an important role in calculating gratuity. If a person has worked for 12 years and 7 months, his number of years will be rounded off to 13 years. And if the person has worked for 12 years and 4 months, then the rounded-off figure will be 12 years.
There are two categories of gratuity calculation. The first is for employers who are covered under the Gratuity Act. The second is for employers who are not covered under the Gratuity Act.
- Employers covered under the Gratuity Act
Gratuity calculator fomula 2022:
Gratuity=n*b*(15/26)
n= Duration of employment
b= Last basic salary + dearness allowance
26 is the number of working days.
Gratuity is calculated at the rate of 15 days’ wages.
Example:
If the number of years of service of an employee is 10 years and the last salary withdrawn along with dearness allowance is Rs. 1 lakh. Then, the gratuity will be calculated as:
10100000(15*26)=5,76,923
- Employers are not covered under the Gratuity Act
Gratuity calculator formula 2022:
Gratuity=n*b*(15/30)
n= Duration of employment
b= Last basic salary + dearness allowance
Taking the same values as the above example. The gratuity will be calculated as:
10100000(15/30)=5,00,000
When a company isn’t covered under the Gratuity Act, then they are not liable to pay the gratuity to its employees. In cases where they want to pay the gratuity, the amount is based on half a month’s basic salary for every year.
Taxation Rules for Gratuity
The amount received in gratuity is taxable. However, the Income Tax Act does provide some exemptions. It is considered as ‘Income from Salary’ while filing the taxes. A government employee can avail full tax exemption. For the non-government employee of an organisation covered under the Gratuity Act, the tax exemptions can be claimed on the minimum amount of the following:
- Maximum limit of Rs. 20 lakh
- Last basic salary x years of employment x 15/26
- Amount of gratuity received
In cases where the non-government employee of an organisation is not covered under the Gratuity Act, the exemptions can be claimed on the minimum amount of the following:
- Maximum limit of Rs. 20 lakh
- Half a month’s average salary x years of employment
- Amount of gratuity received
Conclusion
Gratuity is an important part of an employee’s working life. They are entitled to this amount in exchange for the services they have provided. It helps them when they retire or leave their jobs. However, calculating gratuity manually can be a bit difficult. So, the gratuity calculator formula used online can be helpful and accurate. For more of your finance queries and solutions, visit us at Piramal Finance.