Aditya Birla Sun Life Insurance Company Limited

Gratuity Calculator

Monthly Salary

Salary should be in the range of 500 to 2 Cr

Years of Service

Years of service in range of 5 to 60 yrs

Total Gratuity Payable

0.0

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What is a Gratuity?

Gratuity is a significant financial benefit provided by employers to their employees as a token of appreciation for their long and dedicated service. It is a statutory benefit governed by the Payment of Gratuity Act, 1972, and applies to both private and public sector employees in India. Gratuity is typically paid at the time of retirement, resignation, or death of an employee, and it serves as a financial cushion during these life events.

What is a Gratuity Calculator?

A Gratuity Calculator is a valuable tool designed to simplify the complex process of gratuity calculation. It helps both employees and employers estimate the gratuity amount accurately. By entering specific details, such as the employee's tenure and last drawn salary, into the calculator, you can quickly determine the gratuity entitlement.

Benefits of using a gratuity calculator

If you are planning on calculating your gratuity and planning your future expenses, it makes sense to do so by using a gratuity calculator. There are many different benefits of using a gratuity calculator.

Some of these are:

Accuracy
One of the primary advantages of using a Gratuity Calculator is the accuracy it provides in determining the gratuity amount. It eliminates the risk of manual calculation errors, ensuring that both employees and employers have a clear understanding of the gratuity payout.

Time Saving
Manual gratuity calculations can be time-consuming, especially for organisations with numerous employees. A Gratuity Calculator streamlines this process, providing results within seconds and saving valuable time.

Financial Planning
Knowing the gratuity amount in advance allows employees to plan their finances effectively, especially during significant life events like retirement. It helps in setting realistic financial goals and ensures a comfortable transition into the post-retirement phase.

Gratuity Calculation formula

The gratuity calculation formula depends on whether you are covered under the Payment of Gratuity Act, 1972, or not. For employees covered under the Act, the formula is as follows:

Gratuity = (Last Drawn Salary × 15/26 × Number of Years of Service)

Last Drawn Salary

This includes basic salary and dearness allowance, but does not include any other allowances.

15/26

The fraction represents 15 days out of a total of 26 working days in a month.

Number of Years of Service

The total number of completed years of service, with any part of a year rounded up to the next higher year.

Eligibility for Gratuity

As is the case with most financial products, there are certain eligibility criteria that must be met. To be eligible for gratuity, an employee must meet the following criteria:

The employee must be covered under the Payment of Gratuity Act, 1972.

The employee must have completed a minimum of five years of continuous service with the same employer.

Gratuity is payable upon retirement, resignation, or death.

How to Use the ABSLI Gratuity Calculator?

Using the Aditya Birla Sun Life Insurance (ABSLI) Gratuity Calculator is a straightforward process. It’s an accurate gratuity calculator Indians can use to calculate the gratuity amount.
Here's a step-by-step guide:

Visit the ABSLI website

Navigate to the ABSLI website, where you can find the Gratuity Calculator tool.

Input your details

Enter the required information, including your last drawn salary and the number of years of service.

Get the results

Click the "Calculate" button to obtain instant results, including the estimated gratuity amount.

Plan your finances

Use the calculator's results to plan your finances effectively and make informed decisions regarding your gratuity funds.

Gratuity Calculator after Seventh Pay Commission

The 7th Pay Commission brought significant changes to the gratuity calculation formula for government employees. Under the new rules, the 7th Pay Commission gratuity calculation formula is as follows: Gratuity = (Last Drawn Salary × 1/4 × Number of Years of Service). This change resulted in a substantial increase in gratuity payouts for government employees, making it crucial to use an updated Gratuity Calculator to determine the exact amount.

How to Calculate Gratuity on Retirement?

You can calculate the gratuity using the following retirement gratuity calculation formula: Gratuity = (Last Drawn Salary × 15/26 × Number of Years of Service). To calculate retirement gratuity, you need to know your last drawn salary (including basic salary and dearness allowance) and the total number of years of service you have completed. Plug these values into the formula, and the result will be your estimated retirement gratuity amount. You can also use a retirement gratuity calculator to easily estimate your returns.

How to Calculate Gratuity for Private-Sector Employees?

Gratuity calculation for private-sector employees follows the same formula as mentioned earlier: Gratuity = (Last Drawn Salary × 15/26 × Number of Years of Service). Private-sector employees can use this formula by entering their last drawn salary and the number of years of service into a Gratuity Calculator to determine their gratuity entitlement accurately.

How to Calculate Gratuity for Bankers?

Bank employees can calculate their gratuity using the same formula as mentioned earlier: Gratuity = (Last Drawn Salary × 15/26 × Number of Years of Service). Enter your last drawn salary and the number of years of service into a Gratuity Calculator to determine your gratuity entitlement accurately.

How to Calculate Death Gratuity?

Death gratuity is calculated in the unfortunate event of an employee's demise during their service. The formula for calculating death gratuity is as follows: Gratuity = (Last Drawn Salary × 15/26 × Number of Years of Service) or a fixed amount set by the employer, whichever is higher. The fixed amount set by the employer must not be less than the amount calculated using the formula. In case of an employee's death, the gratuity amount is typically paid to the nominee or legal heir.

Taxation Rules for Gratuity

Gratuity is subject to tax rules in India. As per current taxation rules, gratuity received by government employees is fully exempt from income tax.

However, for non-government employees:

Gratuity received up to Rs. 20 lakhs is exempt from tax.

Any gratuity amount exceeding Rs. 20 lakhs is taxable as per the individual's [income tax slab](https://lifeinsurance.adityabirlacapital.com/articles/life-insurance/income-tax-slab).

It's essential to consult with a tax advisor to understand the tax implications of your gratuity.

Where Should You Invest Your Gratuity Funds?

Investing your gratuity funds wisely is crucial to secure your financial future. It can help you plan expenses, meet specific goals, and even plan for retirement.

Here are some investment options to consider:

Fixed Deposits

Consider placing your gratuity amount in a fixed deposit account to earn a steady and secure income.

Mutual Funds

Invest in mutual funds to potentially generate higher returns over the long term. Choose funds based on your risk tolerance and financial goals.

Public Provident Fund (PPF)

PPF offers tax benefits* and a fixed interest rate, making it a popular choice for long-term savings.

National Pension System (NPS)

NPS is an excellent option for retirement planning, providing tax benefits* and a diversified investment portfolio.

Stock Market

If you have a high-risk tolerance and are willing to invest time in research, consider investing in stocks for potentially higher returns.

Real Estate

Real estate can be a long-term investment option, providing rental income and potential capital appreciation.

Debt Funds

Debt funds offer stable returns and are relatively less risky compared to equity investments.
Before making any investment decisions, consult with a financial advisor to create a personalised investment plan that aligns with your financial goals, risk tolerance, and investment horizon.

Conclusion

In conclusion, gratuity is a valuable benefit for employees in India, and using a Gratuity Calculator can help you determine your entitlement accurately. Understanding the gratuity calculation formula, eligibility criteria, taxation rules, and investment options will empower you to make informed decisions about your gratuity funds. Whether you are planning for retirement, managing your finances, or securing your family's future, gratuity plays a crucial role in your financial journey.

FAQs on Gratuity Calculator

The gratuity calculation formula for employees covered under the Payment of Gratuity Act, 1972, is as follows: Gratuity = (Last Drawn Salary × 15/26 × Number of Completed Years of Service)

For employees not covered under the Payment of Gratuity Act, the gratuity calculation formula is determined by the terms of their employment contract. It may be more favourable than the statutory formula, depending on the employer's policy.

As per the latest rules, the maximum gratuity amount that can be exempt from income tax is Rs. 20 lakhs. Any gratuity amount exceeding this limit is taxable as per the individual's income tax slab.

To be eligible for gratuity, an employee must complete a minimum of five years of continuous service with the same employer. If you resigned after working for 4.5 years, you would not be eligible for gratuity under the Payment of Gratuity Act. However, you should check your employment contract or company policy, as some employers may offer gratuity benefits even if the statutory requirement is not met.

Yes, there is an upper limit on the gratuity amount that is exempt from income tax. As mentioned earlier, the maximum gratuity amount that can be exempt is Rs. 20 lakhs. Any gratuity amount exceeding this limit is taxable.