Gratuity Calculator

What do you understand by the term Gratuity?

Gratuity can be defined as a token of appreciation from the employer to its employees for their productive services over the years. The employee must be in the organisation for a minimum course of 5 years to claim their gratuity payment. The employee gets this amount when they are leaving the organisation or at the time of their retirement. The gratuity is calculated using the number of years the employee has served the organisation and their last salary drawn.

So, digging into the history, we see that before 1972, employers weren’t obligated to pay any kind of gratuity to their employees at the time of leaving or retirement. In 1972, the Government of India came out with the Payment of Gratuity Act 1972. According to this act if an employer is employing more than ten employees in their organisation. The employer is obligated to pay for the employee’s gratuity while leaving the organisation if they have served for a minimum period of 5 years.

We can conclude that Gratuity is a retirement and loyalty scheme for salaried employees.

What is a Gratuity Calculator?

A gratuity calculator is an online mathematical tool that helps you calculate your gratuity amount while leaving the organisation if you served the organisation for a minimum period of 5 years.

Calculating the gratuity amount manually using a traditional calculator is a daunting task. Especially, if you have served for a longer period in the organisation.

The main objective behind the introduction of the gratuity was-

To ensure financial stability for the employee at the time of the time of retirement, or to provide financial support in case of unforeseen circumstances.

How does the Gratuity Calculator Work & Why is it Necessary?

Pocketful’s online gratuity calculator uses this basic formula to calculate your gratuity amount.

The formula is given below-

A=N*S*15/26

A	Final gratuity maount
N	No. of years of service
S	Monthly salary drawn
15	Half-month salary considered for gratuity calculation
26	30 days- 4 Sundays

Let’s understand it with an example

Suppose Mr Sam is of age now and is retiring soon. So he wants to know the gratuity amount that he will receive at the time of his leaving. He has worked for 20 years in the same company & his monthly salary was 80,000.

So, Mr Sam will come to Pocketful’s online gratuity calculator platform and enter details like his total years of service and monthly basic pay+DA. And then press Enter.

And voila!

The maturity Gratuity amount for Mr Sam at the time of his retirement after 20 years of faithful and loyal service to the company is 9,23,077.

Advantages of Using the Gratuity Calculator-

• Calculate the exact amount of your gratuity that the employer has to you. Pocketful’s gratuity calculator is developed under the guidance of experienced professional developers. The results of our gratuity calculator are 100% reliable.
• Using a gratuity calculator for the calculations saves you a lot of time. It prevents you from using complicated formulas and traditional manual calculators to find the Gratuity amount.
• Using an online gratuity calculator saves you resources such as energy and money. And no matter in which state you reside in India. Be it Delhi, Mumbai, Bangalore etc. The process of using Pocketful’s online gratuity calculator remains the same.
• Being able to know your gratuity amount with ease beforehand helps you to do your financial planning for retirement accordingly. Using the tools that are present online, is an efficient way to keep track of your growth. Using different online calculators for various purposes helps you to stay motivated and pivot at the right time.

Taxation System on Gratuity

According to the Income Tax Act 1961, if an employee receives his gratuity. The amount is treated as an employee’s income and will be taxed accordingly.

Important Note:

Every employee is compulsorily required to prescribe the name/s of their nominee after completing a year of service as per the Payment of Gratuity Act, 1972.

Income tax exemption on gratuity

The tax exemption on gratuity income provided under section 10(10) of the Act is available up to the following limits:

The gratuity amount received by the people in Defence is tax-free at the time of retirement.

For employees of the State and Central government, in case of any death or medical emergency. The gratuity is entirely tax-free.

The Gratuity Payment Act of 1972 establishes gratuity for employees of specific organizations. Gratuity is available to employees of the following organizations-

1. Manufacturing, plantation, mine, oilfield, port, and railway firm
2. Ten or more shops, establishments, or educational institutions

Any death or retirement benefit is tax-free to the amount of the least of the following:

1. Rs. 20 lakhs (up from Rs. 10 lakhs following the amendment).
2. The actual gratuity received.
3. The total salary shall be calculated as a sum of 15 days of service for each completed year or portion thereof, i.e. 15/26.

Private sector employees not covered by the Payment of Gratuity Act, 1972:

Other personnel: The Payment of Gratuity Act of 1972 requires some organizations, to pay gratuities. Other organizations, on the other hand, are free to provide a voluntary gratuity to their staff. There are no restrictions on making such gratuity payments.