How to calculate gratuity;
As per Payment of gratuity act 1972, Gratuity can be calculated in following way:
Gratuity = N * P *15/26
Where:
N = Number of years of completed services.
P = Employee’s last drawn salary with dearness allowance
For example, if an employee has worked for a company for 10 years and their last drawn salary including dearness allowance was 60,000 rupees, their gratuity would be calculated as 15 * 60,000 * 10 / 26 = 3,46,143 rupees. It’s important to note that according to the Gratuity Act, the gratuity amount cannot exceed 20 lakh rupees. If an employee’s tenure in their last year of employment is more than six months, it will be rounded up to the nearest year. For employees whose employer is not covered under the Gratuity Act, the gratuity amount is calculated using a different formula: (15 * last drawn salary * years of service) / 30. For example, if an employee has a basic salary of 60,000 rupees and has worked continuously for 7 years for an employer not covered under the Gratuity Act, their gratuity would be calculated as (15 * 60,000 * 7) / 30 = 210,000 rupees.
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