Gratuity Calculator

For employees covered under the Gratuity Act, the formula is: Gratuity = (Last Drawn Salary x 15 x Years of Service) / 26. Here, Last Drawn Salary = Basic + DA. For employees not covered under the Act, the formula is: Gratuity = (Last Drawn Salary x 15 x Years of Service) / 30. The difference is because Act-covered employees get 26 working days per month while others get 30 calendar days.

An employee is eligible for gratuity after completing 5 years of continuous service with the same employer. The 5-year requirement is relaxed in cases of death or disability. For seasonal establishments, eligibility is after 5 seasons. The Payment of Gratuity Act applies to factories, mines, oilfields, plantations, ports, railways, and establishments with 10 or more employees.

The maximum tax-exempt gratuity limit is Rs. 20 lakh for employees covered under the Payment of Gratuity Act. This limit was increased from Rs. 10 lakh in 2019. Any gratuity amount exceeding Rs. 20 lakh is taxable as per the employee's income tax slab. For government employees, there is no upper limit for tax exemption.

Gratuity taxation depends on the employee category. For government employees, gratuity is fully exempt from tax. For non-government employees covered under the Gratuity Act, the least of the following is exempt: (1) Actual gratuity received, (2) Rs. 20 lakh, or (3) 15 days salary for each completed year. Any excess is taxable at applicable slab rates.

TallyPrime's payroll module automatically tracks gratuity liability for all employees based on their service tenure. It calculates gratuity provisions monthly, maintains compliance records, generates Form I (gratuity nomination), and helps with actuarial valuation reports. This ensures accurate financial reporting under AS-15 and Ind AS 19 for employee benefits accounting.