How to Calculate Gratuity? Learn the Formula of Gratuity Calculation

Gratuity is a financial component offered by an employer to an employee in recognition of his/her service rendered to an organisation. It is a part of the salary an employee receives and can be viewed as a benefit plan designed to aid an individual in his/her retirement.

A gratuity calculator is a tool that gives you an estimate of the amount that you would receive, on quitting the job, after rendering a continuous five years of service.

(15 * your last drawn salary * tenure of working) / 26.

An employee should be eligible for superannuation, employee should resign after working for 5 years with a single employer.

Government Employee

The amount of gratuity received by any government employee (whether central/state/local authority) is exempt from the income tax.

Any other eligible private employee whose employer is covered under the Payment of Gratuity Act. Here, the least of the following three amounts will be exempt from income tax: Rs 20 lakh, the actual amount of gratuity received and the eligible gratuity.

The ClearTax Gratuity Calculator is an easy-to-use generic tool, where you enter the basic salary and the years of service. It gives you an estimate of the gratuity you would receive, after five or more years of continuous service.

An individual or a person authorised must send in an application to an employer regarding the gratuity he/she is owed by a company.

The organisation that owes gratuity will compute the amount as soon as the application is received and will also send a notice of the same to the person and the governing authority with the amount stated.

The employer, having sent the acknowledgement, has a time period of 30 days to pay the gratuity amount to the individual.