Gratuity is a statutory entitlement, not a discretionary benefit, and it applies to establishments with 10 or more employees. Since 21 November 2025 it is governed by Chapter V of the Code on Social Security, 2020: the Payment of Gratuity Act, 1972 stands repealed by Section 164 of that Code. The scheme is substantially the same and the arithmetic is unchanged, but the section numbers moved.
Eligibility
Five years of continuous service with the same employer, payable on superannuation, retirement, resignation, or termination, under Section 53 of the Code (the old Section 4). The five year condition does not apply where employment ends due to death or disablement, or on the expiry of a fixed term contract.
The fixed term limb is new. A fixed term employee whose term ends is now entitled to gratuity on a pro rata basis without completing five years, where under the repealed Act the same person would ordinarily have received nothing.
"Continuous service" is defined in Section 54 of the Code, which reproduces the old Section 2A, and includes periods of authorised leave, lay-off, strike, lock-out and cessation of work not due to the employee's fault. A year in which an employee worked at least 240 days, or 190 days in a below-ground or short-week establishment, counts as a year of continuous service, and service rendered before the Code commenced counts too.
Several High Courts have held that an employee who completes 4 years and 240 days in the fifth year qualifies, applying Section 2A of the repealed Act. Section 54 of the Code carries that provision across, so the argument survives. Other decisions have taken a stricter view, and the position is not uniform across the country. If you are in that band, the claim is worth making rather than abandoning, but do not treat it as settled.
The calculation
For covered employees:
Gratuity = (Last drawn basic + DA) × 15 ÷ 26 × completed years of service
The 26 represents working days in a month, and 15 represents 15 days' wages for each completed year. Service beyond six months in the final year is rounded up to a full year. Two points on the numbers under the Code. The ceiling is no longer written into the statute: Section 53(3) says gratuity shall not exceed such amount as the Central Government notifies, so confirm the notification in force rather than assuming the old Rs 20 lakh figure. And the codes use a common definition of wages under which excluded allowances above one-half of total remuneration are added back, so an allowance heavy salary structure may produce a higher base figure than the "basic" line on your payslip suggests. Anything paid above the entitlement is ex gratia.
Claiming it
- Apply to the employer in the prescribed form, ordinarily within 30 days of gratuity becoming payable. Note that a claim is not invalid merely because it is late.
- The employer must determine the amount and pay within 30 days under Section 56 of the Code, whether or not you applied, failing which simple interest is payable for the delayed period.
- If it is refused or unpaid, apply to the competent authority under Section 58, which is what the Code calls the officer the old Act called the Controlling Authority, usually the Assistant Labour Commissioner. An appeal lies within 60 days of receipt of the order, and unpaid amounts are recovered through a Recovery Officer under Section 129.
Points on the Code text that change the arithmetic
- Gratuity is payable for every completed year of service or part in excess of six months, which is where the rounding rule comes from, and Section 53 itself explains that for a monthly rated employee fifteen days' wages means the monthly rate last drawn divided by twenty six and multiplied by fifteen.
- A seasonal establishment employee who does not work through the year is paid at seven days' wages for each season.
- A fixed term employee, and the estate of a deceased employee, are paid on a pro rata basis.
- For a working journalist, the five year condition reads as three years.
- Anything better under an award, agreement or contract with the employer survives the Code, so a company policy promising more than the statutory formula is enforceable as a contract.
- On death, gratuity goes to the nominee and, failing nomination, to the heirs. File the nomination while you are in service; the absence of one is what turns a simple payment into a dispute among family members.
What to do when it is refused
Send a written claim naming the amount and the working: last drawn basic and dearness allowance, the years of continuous service, and the figure. Ask for the employer's own computation if it disputes yours. Where it is not paid within the statutory period, apply to the competent authority, annexing the appointment letter, the resignation or termination letter with the last working day, the last payslips showing basic and dearness allowance, the service or experience certificate, and the demand with its delivery proof. The proceeding is not a suit; there is no court fee of consequence, and you do not need a lawyer to file it, although one helps if the employer disputes continuous service.
Two frequent complications. Where the employer says you were dismissed for misconduct and forfeits the gratuity, the forfeiture stands or falls with the dismissal, so the two fights are really one: our note on wrongful termination and employee rights in India sets out how the dismissal itself is challenged. And where you worked through a contractor or a staffing company, identify the correct employer early, because a claim filed against the wrong entity loses time you may not have.
On tax, gratuity received by an employee is exempt under the Income-tax Act up to a limit, computed as the least of the statutory formula, the amount actually received, and a notified ceiling. Both that ceiling and the ceiling under Section 53(3) of the Code are figures fixed by notification rather than in the statute, so take the current numbers from the notification in force before you plan around them.
When gratuity can be forfeited
Only in the limited circumstances in Section 53(6) of the Code, the old Section 4(6), reproduced word for word: forfeiture to the extent of the loss where termination is for an act, wilful omission or negligence causing damage to the employer's property, and wholly or partly where termination is for riotous or disorderly conduct, or for an act constituting an offence involving moral turpitude committed in the course of employment. Forfeiture requires the termination to have been on those grounds, established properly.