Gratuity is a outlined profit plan and is one in all your retirement advantages provided by your employer. You’ll be able to typically discover Gratuity eligibility particulars in your CTC (Value to Firm) or Firm’s provide letter.
The overall that means of Gratuity is – ‘a favor or reward, often within the type of cash, given in return for service.’ In employment phrases, Gratuity Profit quantity is just like a bonus, that means that it’s a portion of your wage offered to you, by your employer, for the companies rendered on the corporate’s behalf. Gratuity is a reward in your lengthy and meritorious service.
(That means of Outlined Profit Scheme is – A plan/scheme by which a specific amount or share of cash is put aside annually by an organization for the profit of the worker. Gratuity is an outlined profit plan. )
Earlier, it was not obligatory for an employer to reward his worker on the time of his retirement or resignation. However in 1972 the Authorities handed the Cost of Gratuity Act and made it necessary for all of the employers with greater than 10 workers to pay gratuity.
The new Labour Code efficient from November 21, 2025, launched some extra important modifications to the gratuity provisions in India. The important thing replace is that fixed-term workers at the moment are eligible for gratuity after simply one yr of steady service, in comparison with the sooner requirement of 5 years.
New Gratuity Guidelines 2025 Defined
What’s Altering Below the New Labour Codes?
Listed below are must-know highlights from the brand new labor code relating to gratuity profit relevant to all the staff;
Eligibility Adjustments for Gratuity
Below the brand new Labour Code, fixed-term workers—these employed for a selected tenure or venture—will qualify for gratuity after finishing one yr of steady service with at the least 240 days labored. This modification goals to learn contract and short-term employees by offering earlier entry to long-term service advantages. Everlasting workers will nonetheless want to finish 5 years earlier than turning into eligible for gratuity. For partial years of service exceeding 6 months, the yr is rounded as much as the subsequent full yr for gratuity calculation.
Expanded Definition of Wages
The Code mandates that “wages” for gratuity calculation now embrace fundamental pay, dearness allowance, retaining allowance, and at the least 50% of the whole remuneration bundle. This broadening of wage parts raises the gratuity calculation base, rising the potential payout quantity for a lot of workers in comparison with the older definition which thought-about a narrower wage base.
Calculation and Cost Phrases
- Earlier (earlier than the brand new labour codes) the gratuity calculation did differ between:
- Staff coated below the Cost of Gratuity Act, 1972
- Staff NOT coated below the Act
- The system is now uniform for all workers (coated vs non-covered distinction is eliminated).
- Below the brand new labour code (efficient November 21, 2025), the system for calculating gratuity is broadly the identical for “varieties” of workers — however what counts as “wages” (on which the gratuity is predicated) has been modified.
- Gratuity is calculated primarily based on the final drawn wages, which now embrace fundamental pay, dearness allowance, and retaining allowance below the brand new wage definition.
- The final drawn wages, which now embrace fundamental pay, dearness allowance, and retaining allowance below the brand new wage definition.
- The system for gratuity cost is:
| Class | Earlier System | Foundation Days | Act Applicability |
|---|---|---|---|
| Coated below Gratuity Act | (Wages × 15 × Years) ÷ 26 | 26 | Sure |
| Not coated (Govt and many others.) | (Wages × 15 × Years) ÷ 30 | 30 | No |
| Below new labour codes | Uniform system | 26 | Applies to all |
- The utmost gratuity quantity payable by an employer is ₹20 lakh. (For some central govt workers, the restrict has been revised to Rs 25 lakhs w.e.f January 1, 2024.)
- Employers should launch gratuity inside 30 days post-termination, failing which they incur a ten% annual curiosity penalty.
Gratuity profit & Tax Implications
Gratuity is taken into account as your retirement profit and is tax exempted topic to sure circumstances of Earnings Tax Act. For the intent of taxation on gratuity, workers are divided into two classes:
- Authorities Staff &
- Non-public Sector Staff
Any gratuity quantity acquired by an worker (Govt or Non-public worker) throughout his service is taxable. However when gratuity is acquired by the worker on the time of his retirement, dying or superannuation then tax exemption guidelines for presidency workers differs from non-public workers.
In case of Authorities Staff the complete gratuity quantity that he/she receives on retirement or on dying is exempted from paying any Earnings tax.
In case of personal workers, any gratuity acquired is tax exempted to the extent of least of the next:
- Precise Gratuity acquired by you.
- Statutory restrict of Rs 20 Lakh
- Final drawn wages * 15/26 * No. of accomplished years of service
Any gratuity quantity above the exempted portion (or above ₹ 20 lakh) turns into taxable and should be included below “Earnings from Salaries.”
Gratuity Profit | Outdated Vs New Guidelines
| Side | Outdated Labor Code | New Labor Code |
| Eligibility | Minimal 5 years of steady service | Diminished to 1 yr for fixed-term and contract employees; everlasting workers nonetheless requires 5 years |
| Wage Definition | Primarily based primarily on fundamental pay plus dearness allowance (DA) | Contains fundamental pay, DA, plus retaining allowance and different fastened parts included below the brand new wage definition |
| Calculation System | (Final drawn fundamental + DA) × 15/26 × years of service | (Final drawn wages together with allowances) × 15/26 × years of service |
| Most Gratuity Restrict | ₹20 lakhs (newest cap earlier than new code) | ₹20 lakhs (identical cap, however probably larger base because of wage definition) |
| Service Yr Rounding | Accomplished years solely; partial years not totally counted | Years of service rounded up if partial yr exceeds 6 months |
| Cost Timeline | Normally 30 days after exit | Mandated inside 30 days, with 10% annual curiosity on delay |
| Protection | Principally everlasting workers | Expanded to contract, fixed-term, gig employees |
In abstract, the new gratuity guidelines 2025 below the Labour Codes introduce clearer wage definitions, wider eligibility, and extra constant advantages for Indian workers. Whether or not you’re employed within the non-public sector, public sector, or on a fixed-term contract, understanding these up to date gratuity advantages is important for correct monetary planning. As organisations transition to the brand new wage buildings, workers ought to keep knowledgeable to benefit from the improved gratuity entitlement provided below the 2025 framework.
Associated Article : Prime 10 key Highlights of the New Labour Code each Worker ought to know!
(Publish first revealed on : 01-Dec-2025)
