How to calculate your Gratuity in India
Gratuity is a part of salary offered by an organization to an employee. It is one of the retirement benefit offered to an employee, a lump sum that a company pays when an employee leaves an organization. In India, Gratuity is set out under the Payment of Gratuity Act, 1971. As per the Gratuity Act, It will be paid when an employee completes five or more than five years of service in an organization.
How to calculate your gratuity in India
If you are covered under the Payment of Gratuity Act, 1971, the gratuity amount will be calculated as follows:
- Employee’s are entitled to get the salary of 15 days for every completed years as gratuity.
- Only the basic pay and DA (if any) are considered while accounting for the salary. It means any bonus, special allowance and HRA are not taken for the gratuity calculation.
Gratuity = (Salary / 26) x 15 x Number of years in service
Salary is “Last drawn basic pay + DA”
26 is the average working days in a month (As per Gratuity rules – 26 days not 30 days calculated)
15 is the actual days considered for gratuity in a year
Example of Gratuity Calculation
Tamil had been working with an organization for past 5 years, 9 months. Her current basic pay = Rs 15,000 pm, DA = Rs 3,000 pm. So what would be her gratuity
The last drawn salary of Tamil
= Basic salary + Dearness Allowance
= 15,000 + 3000
Years of Service
= 5 years 9 months
= 6 years
= (Salary / 26) x 15 x Number of years in service
= 18,000/26 * 15 * 6
= 62,308 (Total Gratuity)
Important points to remember
1. Nil tax for the Government employees on the gratuity amount.
3. For private sector employees, No tax on gratuity to a maximum of Rs 10 lakh.
If you have any doubts regarding YOUR Gratuity Calculation, kindly leave as comments. We would try our level best to address those.