Many companies or business organizations provide their employees with a gratuity amount for five or more years of their services rendered to that organization. The calculation of this amount is possible by using the gratuity calculator online. The income tax department and many financial or legal websites provide this online calculator, which is very easy to use. In addition, the Payment of Gratuity Act of 1972 defines the terms of gratuity and the rules of gratuity payments that an organization, as defined by the Act, has to follow.
What is Gratuity as per the Payment of Gratuity Act?
It is a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments as specified by the Act towards recognition of services provided for more than five years. In addition, the gratuity amount helps employees during retirement or any disablement or death due to any accident or disease. It is possible to arrive at the gratuity amount using a gratuity calculator.
What is a Gratuity Calculator and Formula for Calculating Gratuity?
This calculator is a tool that helps you to calculate the amount of gratuity that you are eligible to receive. First, enter the last salary you drew, which includes the basic pay and dearness allowance and the number of years of service. Then, the calculator will automatically compute your gratuity amount and give it to you.
There are two situations requiring two different gratuity formulas to compute the amount of gratuity, which are as follows:
1) When the employer falls under the purview of the Payment of Gratuity Act of 1972:
If the employer comes under the coverage of this Act as they have more than ten people employed in service, then even the employee gets the coverage of this scenario, and the formula is:
B = the last salary you drew, which includes Basic Pay and Dearness Allowance.
Here, please note that the number of months that you served, if it is above 6 months, will become another whole year, and if it is below six months, it will get excluded, and only the years will be applicable. So, for example, while using the gratuity calculator in India, 7 years 8 months will become 8 years, and 7 years 5 months will become 7 years.
Example of this scenario:
You were working for ABC Company, which has more than ten employees and has been in the purview of the Gratuity Act for 10 years. Your last salary, including basic pay and dearness allowance, was INR 50000.
Gratuity = (15 * 50000 * 10) / 26 = INR 2,88,462
2) When the employer does not falls under the purview of the Payment of Gratuity Act of 1972:
If the employer does not come under the coverage of this Act, the formula for the gratuity calculator 2022 is:
B = the last salary you drew, which includes Basic Pay and Dearness Allowance.
Example of this scenario:
You worked for ABC Company, which does not fall under the purview of the Payment of Gratuity Act of 1972, for 10 years. Your last salary, including basic pay and dearness allowance, was INR 50000.
Gratuity = (15 * 50000 * 10) / 30 = INR 2,50,00
You can see in the above two examples that the values were identical. Still, the total eligible gratuity amount varies due to the difference in the gratuity calculator formula of the two scenarios.
Eligibility Criteria to Qualify for Payment of Gratuity
To qualify for the payment of gratuity under the Payment of Gratuity Act of 1972, you should meet the following criteria:
● Gratuity is payable to an employee only after the conclusion of continuous services or employment for not less than five years.
● It is payable on his superannuation, resignation, retirement, disablement or death due to disease or accident.
● If the employee gets disabled or dies, the gratuity is still payable even if the required service period criteria does not meet.
Tax Exemptions for Gratuity Amounts
The tax exemption applies to gratuity under the income tax act and is classified into the type of employee: Government or Non-Government employee. Therefore, based on what type of employee you are, the applicable tax exemptions are:
● There is no applicable tax on the gratuity amount for a Government Employee, and they get complete tax exemption.
● For a Non-Government employee, the tax exemption on the gratuity amount as per the gratuity formula above gets further segregated. This segregation is whether the employer is covered or not under the Gratuity Act.
● Suppose the employer comes under the Act's purview. In that case, the lower value of either the actual gratuity amount received or the eligible amount of gratuity or a maximum of INR 20 lakhs gets tax exemption.
● Suppose the employer does not come under the Act's purview. In that case, the lower value of either the actual gratuity amount received or the eligible amount of gratuity or a maximum of INR 10 lakhs gets tax exemption.
Conclusion
The gratuity amount is a lump sum payout that is provided at the time of your retirement or in times of emergency, like any accident that causes disability. It even helps your family members if a death occurs as it helps to take care of their requirements with a significant amount. Therefore, use a gratuity calculator online to plan your finances better for the future because this hefty payout in any of the mentioned scenarios can provide enormous support.
