What Is Gratuity Calculator ?
Moneycontain Gratuity Calculator is a online tool for calculating the gratuity maturity amount by working employees in an organisation in India. It helps you in knowing how much gratuity money you would get if you have retired or left your current job from your organisation.
Gratuity is the monetary benefit an employee receives in lumpsum by his/her company. The main objective of giving gratuity is to provide retirement benefits to the employees. The gratuity amount is totally paid by the employer without any contributions from the employee.
How Gratuity Calculator Works?
In order to use below moneycontain Gratuity Calculator you only need to put 2 details, i.e. the number of years you have worked in your company, keep in mind according to the new gratuity rules brought after new wage code from this financial year April, 2021-22, any fixed term employee is eligible for gratuity even if they have work atleast 1 year or more, this was earlier set to 5 years.
Another point is if you have work for for less than 6 months or above 6 months that is to say suppose if you have worked in a company for 3 year 5 months than the gratuity would be computed as 3 years only.
Similarly, if you have worked for 3 years 7 months than it will be counted as 4 years, so make sure when you put number of years you have worked in your company accordingly.
Next you need to enter the Monthly Salary (Last drawn basic pay + Dearness Allowance if any). Once entered the gratuity calculator will show you two gratuity maturity amount, the first is for those employee’s whose organisation have covered them under the gratuity Act and the second one are for those Employees not covered under the Payment of Gratuity Act.
So go ahead and try it yourself and check below, how much you can expect your gratuity maturity amount using the new Gratuity calculator by moneycontain.
Now, that you have calculated your gratuity maturity amount, it is very important to know some basic things related to gratuity act such as eligibility criteria, types of gratuity, new rules for gratuity and some other things.
Let us understand every aspect related to new gratuity rules step by step.
How Gratuity Works In India?
The Payment of Gratuity Act, 1972 governs the gratuity and its payment rules in India. Under payment of Gratuity Act, an employee has to fulfill specific criteria to be eligible for gratuity payment.
Under these rules, there are two categories of employees. Employees covered under the Act and employees not covered under the Act. The difference lies between between both is on how calculation of gratuity is done, will discuss about the same later in the post.
Before April, 2021 the employee has to work for at least five years in the company continuously to be eligible which has now been reduced to 1 year after the implementation of new wage code in this 2021 financial year.
Note: Labour is a concurrent subject under the Constitution of India and new rules have to be notified by both states and the Centre to be implemented. Hence, it may take some more time to get implemented state-wise.
Another thing under the act rules state that the employee must not have another full-time employer i.e. to say one cannot have 2 employers at the same time.
According to the latest gratuity rules the maximum amount of gratuity that can be paid to an employee is Rs 20 lakh this was earlier set to Rs.10 Lakh.
In the Interim Budget of 2019, interim finance minister Mr. Piyush Goyal announced an increase in the existing tax-free gratuity limit to Rs.20 lakh.
The employer can, however, pay more gratuity than the prescribed ceiling. This means the the gratuity amount would be tax exempted till Rs.20 lakh.
The hike to Rs 20 lakhs is not applicable for employees not covered under the Payment of Gratuity Act).
Gratuity paid by the government to government employees is fully exempt from tax.
In case of death or disability of the employee, even before completion of 5 years, the employee is eligible for gratuity.
The number of months of service is significant in gratuity calculation. In the last year of employment, if the employee works for more than six months, it is rounded off to the next number.
For example, if an employee works for 5 years seven months, the number of years of service will be 6 years. However, if the employee works for only 5 years and five months, the number of years of service will be 5 years.
How Gratuity Calculation Formula Works:
Gratuity calculation formula is based on the Payment of Gratuity Act, 1972, The Act classifies the employees under two categories:
- Employees covered under the Act
- Employees not covered under the Act
The above-mentioned categories apply to both private and government employees. Employee’s under the Payment of Gratuity Act means any person employed on wages for doing any type of work.
The key consideration for gratuity payment is that the person should be employed on wages. Those employed as apprentices are not eligible for gratuity.
Gratuity is calculated on the basis of the number of years of service, as it does not include absentee duty and unaccounted leave. If there was a break in your services, then that particular time is also deducted from the payment of gratuity.
Let us see how gratuity gets calculated for both these categories:
How to Calculate Gratuity for Employees covered under the Payment of Gratuity Act?
To calculate gratuity for Employees covered under the Payment of Gratuity Act below formula is used:
Gratuity (G) = n*b*15/26
Where,
n = The number of completed years in the current organization
b = the Last drawn basic monthly salary (plus dearness allowance, the commission received on sales, if any)
Gratuity considers the number of working days in a month as 26
Gratuity calculates wages at the rate of 15 days
The formula is based on a last-drawn salary of 15 days for each year of service completed or part of it exceeding six months.
For example, Mr. Vivek is an employee at XYZ Pvt. Ltd. for 8 Years and three months. His last pay slip amounts to Rs. 50,000. Check out the screenshot taken from moneycontain gratuity calculator to know the results:
The total amount of gratuity he would receive is
Gratuity = 50,000*8*(15/26) = Rs.2,30,769
In the above example, the year of experience is 8 years. This is because Vivek worked for less than six months in the year. Similarly, in a scenario where years of experience exceed 6 months in a year, then 9 years would be considered for computation.
How to Calculate Gratuity for Employees Not covered under the Payment of Gratuity Act ?
Employees associated with organizations which are not covered under the Act are also eligible for gratuity. There is no restricting law that stops an employer from paying gratuity to its employees.
The amount of gratuity payable to the employee can be calculated based on half month’s salary for each completed year.
The formula applicable for this category is:
Gratuity (G) = n*b*15/30
For example, Mrs. Priya works for ABC Pvt. Ltd. Company for 12 years and eight months. Her latest basic salary is Rs. 75,000. Check out the screenshot taken from moneycontain gratuity calculator to know the results:
The gratuity amount that she is eligible for is
Gratuity = 75,000*13*(15/30) = Rs. 4,87,500
Let us now talk about the gratuity eligibility criteria and rules.
What Are New Gratuity Eligibility and Rules In India?
From April 2021-22, the beginning of the new financial year, the salary structure for most of us will be changing due to the new wage code. The new wage code mandates that your basic pay should be at least 50% of the total cost to the company (CTC).
The definition of wages has been changed in the new wage code, resulting in a change in your salary structure.
Upon implementation, “wages” will include components like basic pay, dearness allowance (DA), and other special allowances while excluding items like House Rent Allowance, bonus, overtime allowance, conveyance, and commissions.
According to the new wage code these excluded items cannot be more than 50% of the total remuneration. If these exclusions cross 50% of the total remuneration, they will be added to the “wages” component.
In simple terms this means, your basic pay, DA and other special allowances (‘wage’) should be 50% of the CTC. This is your net monthly Cost to the Company (CTC).
Likewise, As the basic wages go up, the payment of gratuity will also go up. Moreover, Gratuity was earlier calculated as a % of your basic salary but will also now be calculated on wages.
Another change proposed in the social security code is the extension of gratuity benefit to fixed-term employees as well.
The proposed code on social security, 2020, has extended the benefit of gratuity to fixed-term employees, irrespective of the duration of their employment, making it mandatory on employers to disburse gratuity amounts to fixed-term employees even if they are employed for less than five years and more than 1 year.
I think this is a great step taken by the government of India, due to the unstable nature of jobs in the current scenario and looking at the ongoing current pandemic (Covid-19).
One should be getting gratuity amount even if they have worked for a year in a organisation and should not have any compulsion of 5 years whatsoever.
Earlier an organisation has to have 10 or more employees to be eligible to give gratuity, however after the wage code even if the company has less than 10 employees it still need to pay the gratuity amount to the employee.
Few other new gratuity eligibility list includes, He/she should not have any other full-time employer. He/she must be retired from the job. You should have retired/resigned from the current organisation.
In case of death, disability, or sickness of the individual, one can claim it anytime by the nominee. For more info checkout here.
How Payment of Gratuity Works?
The gratuity payments can be made in cash, cheque, electronic transfer or demand draft. However, to receive the gratuity amount, the eligible employee has to apply within 30 days from the dates it becomes payable.
Also, the employer must pay the employee within 30 days from the date of receipt of the application. However any further delay will make the company liable to pay simple interest on the gratuity amount from the date it is payable until payed.
What are the tax rules for Gratuity?
If you are government employee than gratuity amount is completely tax exempted. For non-government employees covered and not covered under the Act, is taxable under the head ‘Income from Salary’.
According to the latest gratuity rules the maximum amount of gratuity that can be paid to an employee is Rs 20 lakh this was earlier set to Rs.10 Lakh.
In the Interim Budget of 2019, interim finance minister Mr. Piyush Goyal announced an increase in the existing tax-free gratuity limit to Rs.20 lakh.
The employer can, however, pay more gratuity than the prescribed ceiling. This means the the gratuity amount would be tax exempted till Rs.20 lakh.
The hike to Rs 20 lakhs is not applicable for employees not covered under the Payment of Gratuity Act) and it still be charged under Rs.10 lakh.
All employees have to comply with the Income Tax Department regulation for the purpose of tax filing. The Income Tax Act prescribes the rules for tax filing.
Let us understand this through an example, suppose your total gratuity amount comes to Rs.15 lakhs and you are covered under the act, than you do not need to pay taxes on gratuity as the latest limit is set to Rs.20 lakh.
However, for employees not covered under the act is liable to pay remaining amount as the limit is set to Rs.10 lakh i.e. taxes on Rs.5 lakh as per his/her income tax slab rate.
What Are Conditions For Gratuity to be paid?
Below are the conditions or requirement for an employee to get gratuity paid:
- Retirement
- Resignation or termination
- Layoff
- Voluntary retirement Scheme
- Disability or death
Frequently Asked Question (FAQ):
According to New Wage Code, Is it mandatory for an individual to serve five years of continuous service for gratuity?
No, once the new wage code 2021-22, gets implemented all fixed term employees are eligible for gratuity after 1 year or more. Moreover, employees who face disability, sickness, or death need not complete five years of service to receive gratuity from the employer.
How do you claim gratuity after resignation/Retirement?
If you have resigned or retired from your current organisation and is eligible for gratuity apply the same by submitting form I within 30 days from date of leaving in your company. After filling gratuity form I submit a bank passbook copy or canceled cheque along with it.
Once you submit all the required details and documents then within 15-30 days you employer will credit your gratuity amount into your bank account.
Is contractual or temporary employees eligible for Gratuity?
If the organization considers contractual or temporary employees as employees, then they are eligible for gratuity. They can then apply for gratuity.
Does notice period included in gratuity?
Yes. Your service is counted till the last working day that you worked when you were relieved and that includes the notice period for which you do get your salary. As such, your gratuity will be calculated from the date you joined till your last working day including notice period.
Where can I check gratuity balance?
To know your current gratuity amount you need to contact your HR in your company. You can find out the gratuity you can get from them by giving the details of your job period, current salary, etc.
Conclusion:
I hope you have used gratuity calculator and have also enhanced your knowledge related to new guideline about gratuity.
But this is not the end but the beginning because gratuity is a lumpsum amount you have received, what next you do with that money really going to make a impact on your future.
Keeping the gratuity amount idle in your saving account is worst you can do, as due to inflation the value of money will get automatically eroded.
Therefore, instead of keeping it idle or spending it without purpose, you should make investments either in stock market through equity(stocks), ETF, SGB etc. or lumpsum SIP investment in a mutual fund scheme.
One can make other forms of investment as well such as:
- Equity Linked Savings Scheme (ELSS) – 15-18% (market-linked)
- National Pension Scheme (NPS) – 8-10% (market-linked)
- Public Provident Fund (PPF) – 7.1%
Other than above Post Office Monthly Income Scheme (POMIS) which is a government-promoted savings scheme offered by the Department of Post (DoP) or Indian Post. POMIS gives investors monthly returns in the form of interest payments.
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