Gratuity Exemption Calculator

1. What is Gratuity

Gratuity is an amount given by employer to employee for services rendered by him during the employment period. It is defined as a benefit plan where no contributions are made by the employee. However, a person is eligible to receive gratuity only if he has completed a minimum five years of service with an organisation. The only case where Gratuity is payable before completion of five years is at the death of the employee or if he becomes disabled due to any accident or disease.

2. Is the Gratuity received being treated as my Income?

Gratuity received by you will be taxable under the head “Income from Salaries”, however, in case of death, gratuity will be paid to his/her legal heir/nominee, hence taxable under the head “Income from other sources”.

3. What is the Time Limit for payment of Gratuity?

Employer is responsible to calculate & pay the Gratuity within 30 Days of the date when gratuity becomes payable.

4. Are the Temporary or Contractual employees eligible to get Gratuity?

Yes, the temporary and contractual employees are eligible to get Gratuity provided that they are considered as Employees of the organization.

5. Will I be eligible for Gratuity if I have completed 4 years & 6 months of employment.

No, an employee will be eligible for gratuity only if he serves for at least 5 years in a company. However there is a Madras High Court case which specifies that, an employee who has completed 4 years and 240 days in 5th year ,shall be eligible for gratuity.

However, you should contact your HR(Human Resource) personnel for better clarity.

6. How is Gratuity Benefit Amount Calculated?

• Employees Covered under Gratuity Act

  There is no such fixed percentage for payment of gratuity however you can use below mentioned formula to calculate amount of gratuity you are likely to get:

  Amount of Gratuity = (15 X last drawn salary X tenure of working)/26

  Last drawn salary includes Basic pay, Dearness allowance, and Commission received on sales.

  Any service which is in excess of 6 Months shall be rounded off to 1 Year.

• Employees not Covered under Gratuity Act

  Amount of Gratuity = Average salary x 1/2 x No. of years of service

  Last drawn salary includes Basic pay, Dearness allowance, and Commission received on sales.

  However, your service above 6 months in any year will not be rounded off here.

7. What is the Maximum Gratuity amount that I can receive?

There is a ceiling of Rs. 20 Lakhs of Gratuity you can receive. Even if you are eligible to get Gratuity more than Rs. 20 Lakhs, your company is bound to pay Rs. 20 lakhs only. However your company can pay the further amount as Performance Bonus or Ex-Gratia.

8. If my company is suffering from Financial Loss, can it refuse to pay Gratuity?

Even if your company is not good Financially, it can’t refuse to pay Gratuity. It is bound to pay it to the employees.

9. How to use the Gratuity Exemption Calculator?

This calculator is designed to provide you the amount of Gratuity being exempt by the Income Tax Authority. When you will provide the details required, it will show you the amount of gratuity exempt from taxes. For calculating your limit of Gratuity Exemption, Follow the below mentioned Steps:

• Step 1: Choose whether you are covered under the Gratuity Act.

  If you are covered under Gratuity Act, select the 1st option i.e., Lower of Gratuity covered otherwise choose the second one.

• Step 2: Provide the details of Number of years of service provided, Last drawn Salary & Actual Gratuity Received.
  • Number of years of service should be rounded off to 1 year if you have provided more than 6 months of service.
  • Last drawn salary includes “Basic Pay + Dearness Allowance”.
• Step 3: Press “CALCULATE” to get the eligible Exemption amount of Gratuity.

Note: Maximum amount of Gratuity Exempt under law is Rs. 20 Lakhs.