At a glance
| Item | Position |
|---|---|
| Law | Code on Social Security, 2020 (Chapter V), in force from 21 November 2025; replaced the Payment of Gratuity Act, 1972 |
| Establishments covered | 10 or more employees on any day in the preceding 12 months; coverage continues if headcount falls |
| Who qualifies | 5 years of continuous service; 1 year for fixed-term employees (pro rata); no minimum on death or disablement |
| Formula | 15 days’ wages for each completed year: last wages × 15 ÷ 26 × years |
| Ceiling | ₹20 lakh in all |
| When to pay | Within 30 days of it becoming due; late payment carries simple interest |
The calculation
Gratuity = last drawn wages × 15 ÷ 26 × completed years of service. The 26 is the working days in a month; 15 is fifteen days’ wages for each year. A final part-year of more than six months counts as a full year.
Seasonal establishments pay seven days’ wages for each season instead of fifteen.
| Example | Working | Gratuity (₹) |
|---|---|---|
| Wages ₹40,000, 7 years 8 months | 40,000 × 15 ÷ 26 × 8 | 1,84,615 |
| Wages ₹60,000, fixed-term, 1 year 3 months | 60,000 × 15 ÷ 26 × 1 | 34,615 |
Which wages count
Gratuity is worked out on "wages" as the Codes define them — basic, dearness allowance and retaining allowance — with the 50% rule: if excluded allowances exceed half of total pay, the excess is added back. For many salary structures this raised gratuity liability from 21 November 2025, and actuarial valuations of gratuity provisions should reflect it.
Fixed-term employees
A fixed-term employee who completes one year of continuous service is entitled to gratuity in proportion to the service rendered, on the same formula. Before the Code, most fixed-term employees left before five years and received nothing.
Income tax on gratuity
For employees outside government, gratuity is exempt from income tax up to ₹20 lakh over a working life; any amount above that is taxable salary. Government employees’ gratuity is fully exempt.
What HR does
- Track continuous service from the date of joining, including authorised leave and breaks the law treats as continuous.
- On exit, work out gratuity at the last drawn wages and pay it within 30 days, usually in the full and final settlement.
- Collect and keep nominations from employees after one year of service.
- Fund or provide for the liability — many employers use an insurer’s group gratuity scheme — and value it each year.
WebHR works out gratuity in the full and final settlement: wages × 15 ÷ 26 × completed years, with a part-year over six months counted as a year, and shows the working on the settlement statement. For a leaver on or after 21 November 2025, wages are basic plus DA or half the gross, whichever is higher (the 50% rule), and an employee whose latest contract is fixed-term qualifies after one year instead of five.
Forms and returns
| Form | What it is for | Who files | Download |
|---|---|---|---|
| Gratuity nomination | Employee’s nominees for gratuity | Employee | Official page |
| Gratuity application | Claim by the employee or nominee | Employee or nominee | Official page |
Downloads open the issuing authority’s own page, so you always get the current version. All forms
Due dates
| What | When | How often |
|---|---|---|
| Gratuity payment | Within 30 days of becoming due | Event-based |
If a due date falls on a holiday, the authority’s own rule for the next working day applies. Full compliance calendar
References
Related
Plain-language guidance for HR teams, not legal advice. Checked against the sources above on 29 September 2026; the notification or your authority’s portal is final. Spotted something out of date? Tell us.