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When you work in an organization and provide your services continuously for five years, the employer pays a lump sum for the services availed called gratuity. Gratuity is paid under the payment of gratuity act, 1977 - India Code. Completion of five years in the same organization makes you eligible for gratuity but its payment and sum payable depends on other factors as well.

What is Gratuity?

Provided under the payment of Gratuity Act, Gratuity is the amount that an employer pays to its employees for availing their services. It is extended to those employees who have been working in the same organization for over 5 years. You can claim the Gratuity amount only at the time of closure of the service, if you continue working, the sum keeps rolling in coming years with further addition in the amount.

Relaxation in tenure is given if death or permanent physical disability due to accident or sickness of the employee is registered. In case of death of the employee amount of gratuity is payable to the nominee. Gratuity is non-transferable in case of job change, unless the parent organization is the same.

Benefits of Gratuity

You receive a lump sum amount at the time of leaving the organization after at least 5 years of service.
Nominating a family member is possible by filling out Form F at the time of joining the organization.
Payment of gratuity is compulsory even if the company is at a loss.
Gratuity received over 10 lakh is taxable, thus it is important to keep it in mind.

Who Can Get the Gratuity?

The gratuity can be claimed only if you meet the following eligibility criteria-

The employee is eligible for superannuation.
The employee is retiring from the services.
The employee is resigning after continuous service for 5 years.
In case of death, accident, or permanent disability; gratuity is paid.

When Can I Claim Gratuity?

Gratuity is payable only after the employee completes five years in the same job. At the time of voluntarily leaving the organization or after termination, the employee can claim the gratuity. While changing the job, the gratuity account is non-transferable unless the parent organization of new and old jobs is the same.

How to Calculate Gratuity?

Calculation of the gratuity in India depends on two categories under the payment of gratuity act,1972.

Category 1: Employee covered under the act

Category 2: Employee not covered under the act

These two categories are applicable for both government and non-government employees with various heads applied separately for both as per the requirement. In private organizations, the gratuity is given only if at least 10 employees are working on a single day in the past 12 months.

Category 1: Employee covered under the act

Gratuity is calculated based on the number of years of the service and last drawn salary by using the following formula-

Gratuity=Last drawn salary*(15/26)* the number of years of the service

*26 is the number of days in a month.

*15 is the day for which gratuity is accounted for.

Category 2: Employee not covered under the act

For this category, the average number of days in a month is taken by 30 days. Gratuity=Last drawn salary*(15/30)*number of years of the service.

For both the cases, the last drawn salary consists of:

Basic
DA-for government employees
The commission received on the sale

Gratuity Calculator

A gratuity calculator is an automated tool that calculates the sum payable as gratuity you would receive at the time of leaving the service after at least five years. The gratuity calculator saves you from the tiring calculation of the sum using the above formula. It also works on the same formula, but in an automated way and has no chances of error or variation.

Benefits of Using Gratuity Calculator

No hassle in the calculation of the total gratuity receivable.
Estimation of gratuity is possible without any subject expertise.
The exact figure is reached without any errors or variations.
Helps in investment and financial planning.

If you are a government employee or working in a private organization, Gratuity is the reward for the services rendered by you and loyalty given to the organization for at least five years. Gratuity can be a good financial backup when you are leaving the job or in transit of a new job. For better financial planning, your sum of gratuity can play a good role and using the gratuity calculator, you can reach the estimated value easily.

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FAQs

Gratuity or gratuity in salary is the sum received by the employee after five years of service in the same organization. It’s a token of appreciation given to the employee by the employer for availing his or her services.

It is like a retirement benefit provided by the employer to the employee upon leaving his job. Since the gratuity is a part of the salary that is payable only after completing the 5 years of service and payable at the time of the end of service, it’s deducted from the salary.

No, Gratuity and PF are not the same. Gratuity is the sum paid to the employee for appreciation and loyalty received by the employer while PF is a retirement benefit that an employee saves for himself.

Yes, you can get gratuity on termination as well if you have rendered continuous service for not less than five years and– (a) On superannuation, or (b) On his retirement, resignation, or (c) On death or disablement due to accident or disease.

The employer pays the gratuity to the employee under the payment of gratuity act 1977.