How Does the Gratuity Calculation Formula Work?
Gratuity is a monetary benefit provided by an employer to an employee for services rendered to the company. According to the Payment of Gratuity Act, 1972, understanding how to calculate gratuity is essential for any salaried professional planning a job change or retirement.
Our Gratuity Calculator uses the standard 15/26 formula for employees covered under the Act. The formula is: (15 × Last drawn salary × Tenure of working) / 26. In this formula, 15 represents the 15 days of wages you receive for every completed year of service, and 26 represents the total working days in a month.
Frequently Asked Questions About Gratuity Eligibility
What is the minimum eligibility for gratuity?
To be eligible for a gratuity payout, an employee must complete a minimum of 5 years of continuous service with a single employer. However, in cases of death or disablement, the 5-year rule does not apply.
How should I round off my 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. For example, 5 years and 7 months is considered 6 years for the gratuity calculation. If it is 5 years and 4 months, it is considered 5 years.
Is the gratuity amount tax-free?
For government employees, the entire gratuity amount is exempt from income tax. For non-government employees covered under the Gratuity Act, the gratuity amount is tax-exempt up to a maximum limit of ₹20 Lakhs. Any amount received above this limit is taxable as per your income tax slab.