How to Calculate Gratuity: A Step-by-Step Guide

What is Gratuity?

Gratuity is a monetary benefit given by an employer to an employee for services rendered in the company. It's a form of appreciation and financial security provided to employees who have completed at least 5 years of service.

Gratuity Calculation Formula

The basic formula for calculating gratuity is:

Where:

• Last drawn salary = Basic salary + Dearness Allowance
• Years of service = Total number of years worked
• 15 = Number of days salary per year
• 26 = Number of working days in a month

Factors Affecting Gratuity

• Length of service
• Last drawn salary
• Company policies
• Employment type (permanent/contract)

Tax Implications

Understanding the tax aspects of gratuity:

• Tax exemption up to ₹20 lakhs
• Different rules for government and private sector employees
• Tax implications for early withdrawal

Tips for Maximizing Gratuity

1. Understand your company's gratuity policy
2. Keep track of your service duration
3. Plan your exit timing
4. Consider tax implications

Conclusion

Understanding gratuity calculation is essential for financial planning. Use our gratuity calculator to estimate your payout and make informed decisions about your career transitions.