Gratuity calculator India 2025: Gratuity is a means of financial security for employed people in India. It is a form of recognition given by an employer in return for an employee’s years of loyalty and service. Whether you are employed in the private sector or in government service, you become eligible to receive gratuity after completing 5 years of continuous service. This is commonly referred to as a “loyalty bonus,” and is given as a token of appreciation for your long tenure.
What is gratuity?
Gratuity is the amount paid to an employee upon leaving a job, retiring, or ending service before retirement. It provides financial support after retirement. In India, this facility is provided under the “Payment of Gratuity Act, 1972.” This Act applies to organizations that employ 10 or more employees. The purpose of this law is to provide employees with financial stability at the end of their employment so they can meet their future needs.
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Requirements for Gratuity
According to the law, an employee is eligible for gratuity benefits only if they have served the same organization for five or more consecutive years. If a person leaves the job before completing five years, they are not eligible for this benefit. However, under certain circumstances, gratuity is paid to the employee’s family.
Understand Gratuity Calculation
For example, if an employee’s basic salary is ₹65,000 and they have served for 7 years, they will receive a gratuity of approximately ₹2,62,500. However, if the employee has 10 years of service and their total salary, including DA, is ₹65,000, the gratuity will be approximately ₹3,75,000. Currently, the maximum limit for gratuity is ₹20 lakh.
Payment of Gratuity
Gratuity is usually paid when an employee leaves a job or retires. Many companies now offer online gratuity calculators, allowing employees to estimate their expected amount. Gratuity is paid directly by the employer to the employee or their nominee.
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What are the tax rules on gratuity?
The tax laws governing gratuity in India are completely transparent. Government employees receive their entire gratuity tax-free, while private sector employees receive a tax exemption only up to a certain limit. If your company falls under the Payment of Gratuity Act, 1972, the amount will be reduced by ₹20 lakh out of three. Tax will not be payable on this amount.
Why is Gratuity Planning Important?
Gratuity is not just a bonus but a strong means of financial stability after retirement. If you serve a company for a long time, this amount can become a significant part of your pension or retirement savings. Therefore, every employee should plan it properly according to their service period and salary.