Indian Labour & Social Security Law

Gratuity Law in India: Eligibility, Calculation, Payment and Claims

An updated guide to gratuity after implementation of the Code on Social Security, 2020, with a section-wise reference to the former Payment of Gratuity Act, 1972.

Current legal position (updated 4 September 2026): The four Labour Codes, including the Code on Social Security, 2020, were brought into force from 21 November 2025. Gratuity is now governed principally by Chapter V, sections 53 to 58 of the Code on Social Security, 2020. The Payment of Gratuity Act, 1972 has been repealed, subject to the repeal-and-savings provisions of the Code.
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Coverage and Applicability

The gratuity provisions of the Code on Social Security apply to covered establishments and employees in accordance with the Code and applicable rules and notifications. The statutory framework continues the broad gratuity protection historically available to employees of factories, mines, oilfields, plantations, ports, railway companies, shops and other covered establishments.

Whether a particular establishment or employee is covered can depend on the nature of the establishment, employee strength, the appropriate Government and any applicable notification. State-specific rules may also matter where the State Government is the appropriate Government.

General service requirement Ordinarily at least five years of continuous service for gratuity on superannuation, retirement or resignation.
Five-year rule not always required The Code removes the five-year condition in specified cases, including death, disablement and expiry of qualifying fixed-term employment.
Standard rate Gratuity is generally calculated at 15 days' wages for every completed year of service or part exceeding six months, subject to the Code.
Payment timeline Once gratuity becomes payable, the employer must determine it and arrange payment within the statutory period.

When Is Gratuity Payable?

Under section 53 of the Code on Social Security, gratuity is payable on termination of employment after the required continuous service on events that include:

For a regular employee, five years of continuous service is ordinarily required for superannuation, retirement or resignation. Completion of five years is not necessary where employment ends because of death, disablement, expiry of fixed-term employment, or another notified event. Special rules also apply to working journalists.

How to Calculate Gratuity

For each completed year of service, or part of a year exceeding six months, gratuity is generally payable at the rate of 15 days' wages based on the employee's last drawn wages, subject to the Code and applicable notifications.

Gratuity = Last drawn eligible monthly wages X 15 / 26 X completed years of service

For example, where the applicable monthly wage for gratuity purposes is ₹40,000 and qualifying service is 10 completed years, the basic formula produces:

₹40,000 X 15 / 26 X 10 = approximately ₹2,30,769.

The meaning of wages is now governed by section 2(88) of the Code on Social Security, 2020. Accordingly, gratuity calculations for relevant separations on and after 21 November 2025 should not simply copy the pre-Code wage treatment without checking the statutory wage definition and applicable rules.

Maximum statutory amount: the amount payable is subject to the ceiling notified by the Central Government from time to time. The earlier statutory ceiling under the 1972 Act was ₹20 lakh. Before relying on a ceiling for a present claim, check the latest notification applicable under the Code and any better contractual, award or service-rule entitlement.

Fixed-Term Employees

The Code expressly recognises gratuity on expiry of fixed-term employment. Ministry of Labour and Employment guidance issued after implementation of the Labour Codes states that a fixed-term employee directly engaged by the employer becomes eligible for gratuity on completing one year of service under the contract. Fixed-term employment does not mean contract labour supplied by an independent contractor.

Determination, Payment and Interest

Under section 56 of the Code, when gratuity becomes payable the employer must determine the amount and give written notice to the person entitled and to the competent authority. The employer must arrange payment within 30 days from the date gratuity becomes payable.

If payment is delayed beyond the prescribed period, simple interest is generally payable from the date the gratuity became due until actual payment, subject to the statutory exception where the delay is attributable to the employee and the employer has obtained the required written permission.

Gratuity Claims, Disputes and Recovery

If there is a dispute regarding the amount payable, eligibility, or the person entitled to receive gratuity, the admitted amount is to be deposited with the competent authority and the dispute may be taken before that authority in the prescribed manner.

For Central-sphere matters, the Ministry of Labour and Employment's SAMADHAN portal provides an online mechanism for claims and grievances, including gratuity matters. The exact authority and procedure may differ depending on whether the Central Government or a State Government is the appropriate Government.

When Can Gratuity Be Forfeited?

Gratuity cannot be withheld merely because employment has ended on adverse terms. Section 53 permits forfeiture only in specified circumstances. Broadly, gratuity may be forfeited to the extent of loss caused by an employee's wilful act, omission or negligence that damages the employer's property, and may be wholly or partly forfeited for specified misconduct such as riotous or disorderly conduct, violence, or an offence involving moral turpitude committed in the course of employment, subject to the statutory requirements.

Better Contractual Terms

The statutory gratuity scheme does not take away an employee's right to receive better gratuity terms under an award, agreement or contract with the employer. Employment contracts, settlements, service rules or schemes should therefore be checked before assuming that the statutory formula is the maximum benefit available.

Payment of Gratuity Act, 1972 — Section-wise Legacy Reference

The following internal pages reproduce or explain provisions of the former Payment of Gratuity Act, 1972. They are retained for historical research, pre-21 November 2025 matters and comparison with the present Code. For current rights and liabilities, read them together with the Code on Social Security, 2020 and applicable rules.

Important Note

This page provides general legal information. Gratuity entitlement can depend on the date employment ended, the applicable Government, the employee's service history, wage components, employment category, contractual terms, exemptions and current notifications. For a disputed claim, verify the latest Code, rules and notifications applicable to the establishment.