How To Calculate Gratuity Benefit ? – Gratuity is being paid by all the establishment in India having more than 10 employees and fall under gratuity act. Gratuity is the component of salary paid to employees after five years of continuous service in organization.
The Amount paid under Gratuity are Exempted under Income Tax. Read No Tax on Gratuity for Details
The Component of salary consider for calculation of Gratuity are Basic Pay and dearness allowance. The length of service consider for calculating the Gratuity are in round figure as like If any employee is working for 6 years 7 month , the year of service consider will be 7 years and if the length of service in month less than 6 i.e. 6 years 4 month the component consider as 6 years. he benchmark is 6 month.
The formula of calculating the gratuity is very simple i.e. multiple of Basic pay along with dearness allowance and length of service with 15 and divisible to 26 i.e. the actual working days in month.
Gratuity = BP X Dearness Allowance X length of Service X 15 / 26