Gratuity Calculator

What is Gratuity?

Gratuity is a monetary benefit given by an employer to an employee for rendering services continuously for 5 years or more. It's a token of appreciation for the services rendered by the employee. In India, gratuity payment is governed by the Payment of Gratuity Act, 1972.

The Gratuity Formula

The formula for calculating gratuity depends on whether the employee is covered under the Payment of Gratuity Act, 1972:

1. If covered under the Act:

\[Gratuity = \frac{Last\, Drawn\, Salary}{26} \times 15 \times Years\, of\, Service\]

2. If not covered under the Act:

\[Gratuity = \frac{Last\, Drawn\, Salary}{2} \times Years\, of\, Service\]

Where:

• Last Drawn Salary = Basic Pay + Dearness Allowance
• Years of Service = Completed years + (Completed months / 12)

Step-by-Step Gratuity Calculation

1. Determine if the employee is covered under the Payment of Gratuity Act, 1972.
2. Calculate the Last Drawn Salary by adding Basic Pay and Dearness Allowance.
3. Calculate the total years of service, including any partial year.
4. Apply the appropriate formula based on whether the employee is covered under the Act.
5. If covered under the Act, ensure the calculated amount doesn't exceed ₹20,00,000 (the maximum limit).

Example Calculation

Let's calculate the gratuity for an employee with the following details:

• Basic Pay: ₹30,000
• Dearness Allowance: ₹5,000
• Years of Service: 10 years and 6 months
• Covered under Gratuity Act: Yes

1. Last Drawn Salary = ₹30,000 + ₹5,000 = ₹35,000
2. Years of Service = 10 + (6/12) = 10.5 years
3. Gratuity = (35,000 / 26) × 15 × 10.5 = ₹2,11,538.46

Visual Representation

The green portion represents the monthly salary (₹35,000), and the blue portion represents the calculated gratuity (₹2,11,538).