Gratuity Calculator

What is Gratuity?

Gratuity is a lump sum amount paid by an employer to an employee as a token of appreciation for their long-term, continuous service to the company. It is governed by the Payment of Gratuity Act, 1972, making it a statutory right for eligible employees in India.

Who is Eligible for Gratuity?

According to the law, to be eligible to receive gratuity, an employee must satisfy the following conditions:

• The employee should be eligible for superannuation (retirement).
• The employee retires from service or resigns after working for at least 5 continuous years with the same employer.
• In cases of death or disablement due to an accident or disease, the 5-year continuous service rule is waived off, and gratuity is paid immediately.

How is Gratuity Calculated?

The Anivicus Gratuity Calculator uses the standard formula prescribed by the Payment of Gratuity Act for employees covered under the act:

$Gratuity = (Last \ Drawn \ Salary) \times \frac{15}{26} \times (Years \ of \ Service)$

• Last Drawn Salary: This includes your Basic Salary plus Dearness Allowance (DA). Allowances like HRA or special allowances are excluded.
• 15/26: Represents 15 days' salary for every completed year of service (assuming a working month consists of 26 days).
• Years of Service: If you have worked for more than 6 months in your final year, it is rounded up to the next full year (e.g., 5 years 7 months is considered 6 years).

Gratuity Taxation Rules

The government offers significant tax relief on gratuity payouts. For government employees, the entire gratuity amount is completely tax-free. For private-sector employees covered under the Payment of Gratuity Act, the gratuity received is tax-exempt up to ₹20 Lakhs under Section 10(10) of the Income Tax Act. Any amount received above this ₹20 Lakh threshold is considered part of your salary and taxed as per your applicable income tax slab.