New Gratuity Rules India 2025
The transition from the Payment of Gratuity Act 1972 to the Social Security Code 2020 marks a significant change for Indian employees. While the base formula remains the same, how we define "wages" and who is eligible has been updated to benefit workers.
The 2025 Statutory Formula
Gratuity = (Eligible Wages) × (15/26) × Years
Eligible WagesThe higher of (Basic + DA) OR 50% of your Monthly CTC
15/2615 days of salary out of 26 working days
YearsCompleted years of service (rounded up if > 6 months)
India Worked Examples
Example 1: IT Employee
Ravi works at a Pune-based software company for 8 years. Last drawn Basic: ₹70,000/month. No DA. Employer is covered under Act.
1
Basic Salary₹70,000
2
DA₹0
3
Service Duration8 years
4
Formula70,000 × 15 × 8 ÷ 26
Total Gratuity₹3,23,077
Example 2: Manufacturing
Sunita works at a Pune auto-parts factory for 15 years. Basic: ₹40,000; DA: ₹12,000/month. Employer is covered.
1
Basic Salary₹40,000
2
DA₹12,000
3
Total Base₹52,000
4
Formula52,000 × 15 × 15 ÷ 26
Total Gratuity₹4,50,000
Key Updates in the Labour Code
1-Year Eligibility
Fixed-term (contract) employees now qualify after just 1 year of continuous service.
50% Wage Rule
Statutory "wages" must be at least 50% of your CTC, potentially increasing your payout.
Vesting Periods
- Permanent Employees: 5 Years of service required.
- Fixed-Term Employees: 1 Year of service required.
- Death/Disablement: No minimum service required.
- Madras HC rounding: 4 years 240 days total.