Gratuity Calculation: What will be your gratuity on Rs 45,000 last-drawn basic salary for 6 years & 9 months of service?
Gratuity is a financial benefit given by employers to employees for continuous service. Learn how to calculate gratuity for a Rs 45,000 salary and 6 years 9 months of service using a simple formula.
Gratuity is an essential financial benefit provided to employees as a reward for their long-term service. If you have a last-drawn salary of Rs 45,000 and have worked for 6 years and 9 months, you may be eligible for gratuity. Understanding the gratuity eligibility criteria, calculation formula and tax implications can help you plan your finances better. This guide explains how to calculate gratuity using a simple formula and how it impacts your financial security after employment.
What Is gratuity?
Gratuity is a financial benefit employers provide to employees as a token of appreciation for their continuous service. It is regulated under the Payment of Gratuity Act, 1972.
Who is eligible for gratuity?
An employee is eligible if they:
- Work in an organisation with 10 or more employees.
- Complete at least 5 years of continuous service.
- Are employed in sectors like factories, railways, mines, or offices.
When is gratuity paid?
Gratuity is payable in cases of:
- Resignation after 5 years of service.
- Retirement or superannuation.
- Termination by the employer.
- Disablement due to accident or illness.
- Death (paid to the nominee or family).
Which organisations must provide gratuity?
Any organisation with 10 or more employees in the past 12 months must provide gratuity benefits. Once covered under the Gratuity Act, they cannot opt out.
Minimum service requirement for gratuity
-
At least 5 years of continuous service is mandatory.
- If an employee works 6 months or more in a year, it is rounded to the next full year.
- Example:
- 7 years 1 month → Counted as 7 years
- 8 years 6 months → Counted as 9 years
At least 5 years of continuous service is mandatory.
- Example:
- 7 years 1 month → Counted as 7 years
- 8 years 6 months → Counted as 9 years
Key factors affecting gratuity amount
The gratuity amount is based on:
- Last drawn basic salary.
- Total years of service (rounded as per the rule above).
Gratuity calculation formula
The standard formula for gratuity calculation:
Gratuity=26(Last Drawn Salary×Years of Service×15)
- 15 represents 15 days’ salary per year of service.
- 26 represents working days in a month (excluding Sundays).
Gratuity calculation for Rs 45,000 salary & 6 years 9 months of service
Years counted: 7 years (as per rounding rule).
- Applying the formula:
Gratuity=26(45,000×7×15) Gratuity = Rs 1,81,730
Tax implications on gratuity
-
Government employees → Fully tax-exempt.
- Private sector employees → Tax exemption up to up to Rs 20 lakh under Income Tax rules.
Government employees → Fully tax-exempt.
Importance of gratuity in financial planning
Gratuity acts as a financial cushion for employees post-retirement or job transition. Using a gratuity calculator helps in estimating benefits and planning finances effectively.