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Published on:

May 7, 2026

Swipe Admin

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Gratuity in India: Complete Guide to Rules, Act & Claim Process

Have you ever wondered if your years of hard work and loyalty to a company earn you something more than just a monthly salary? In india, that reward is called Gratuity. It is a statutory benefit provided by an employer as a thank you for your long term service. Unlike your Provident Fund (PF), which involves your own contribution, gratuity is a lump sum amount paid entirely by the employer.

As per the changes in the laws related to gratuity in 2026, gratuity has now become more flexible. After the enforcement of Social Security Code 2026 from November 21, 2025, the five-year rule will not be the sole rule for gratuity. Also, there would be an amendment in terms of what constitutes wage to make the payments more equitable. It is important for all employees, contractors, and HR professionals to get updated on the recent developments.

Here, we explore the new Gratuity Act of India along with all the relevant information on eligibility, calculation, and claiming of gratuity.

Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 applies to all factories, mines, oilfields, plantations, ports, railways, and establishments employing 10 workers or more. Once covered under the act, an establishment stays covered regardless of any reduction in its number of employees.

The Service Requirements:

Permanent Employees: You must complete 5 years of continuous service with the same employer, under the same company. Do please note that 4 years and 240 days is often legally accepted as 5 years.

Fixed Term Employees or FTE: Under the Social Security Code 2020, Section 53, fixed term workers are now eligible for gratuity on a pro-rata basis if they complete just 1 year of continuous service.

Season Establishments: Gratuity is payable at the rate of seven days’ wages for each season.

Death or Disablement: The minimum service requirement is waived if employment ends due to death or permanent disablement. In such cases, gratuity is paid to the nominee or legal heir immediately, as per BajajFinserv.

Learn about the Labour Laws in India.

How to Calculate Gratuity in 2026

The amount of gratuity depends on two factors: your Last Drawn Wages and your Tenure of Service.

The Modern Wage Rule (50% Cap)

Under the 2026 rules, your Wages for statutory benefits must compromise at least 50% of your Total Remuneration or CTC. If your allowance (HRA, Travel, etc) exceeds 50%, the excess amount is added back to your “Basic + DA” to form your Wages. This ensures that gratuity calculations are not suppressed by keeping “Basic” pay artificially low.

The Statutory Formula:

Gratuity = (Last Drawn Wages x 15 x Years of Service)26

Last drawn Wages: Includes Basic Pay + Dearness Allowance (DA) + Retaining Allowance

15/26: 15 days’ salary out of 26 days’ working period in a month.

Rounding Off Rule: When your service period in the last year is more than 6 months, then it will be rounded off to a complete year, such as, for instance: 6 years and 7 months = 7 years, as per MotilalOswal.

Differences between Gratuity & Other Statutory Payments

Feature	Gratuity	Provident Fund or PF	Bonus
Contribution	100% by Employer	Employer + Employee	100% by Employer
Eligibility	5yr (1 year for FTE)	From Day 1	30 days in a Year
Payout Time	At exit or retirement	At exit or retirement	annual
Tax Status	Exempt up to ₹20 Lakh	Exempt but within limits	fully taxable

How to Claim your Gratuity

In 2026, the claims procedure was simplified by digital HR portals, but statutory forms still form the bedrock of the whole claims process.

Form I Submission: In case of resignation or retirement, you should submit Form I to your employer within 30 days.

Verification or Form L: The employer has 15 days to verify your service and calculate the amount, after which they issue Form L or Notice of Payment

Disbursement: The employer must pay the gratuity within 30 days of your last working day.

Interest on Delay: If the payment is delayed beyond 30 days, the employer is liable to pay Simple Interest, typically 10 % per annum for the period of delay.

Tips for Businesses

For business wonders and HR managers, provisioning for gratuity for hundreds of employees can be a complex compliance task. In 2026, manual spreadsheets are a major audit risk. This is where Swipe transforms your business operations.

By using Swipe’s integrated payroll and accounting tools, you accurately track Continuous Service and automate wage definitions according to the 50% CTC rule. Swipe ensures that your financial statements reflect the correct gratuity provisions, keeping you audit ready and compliant with the Social Security Code, Ready to simplify your statutory compliance? Master your startup’s finances with Swipe: effortlessly manage GST, billing, and inventory, ensuring your venture remains audit ready as you scale.

Conclusion

Gratuity laws in India in the year 2026 show a modern approach to gratuities that favor workers. With lower eligibility criteria for fixed-term employees and strict enforcement of the 50% wage requirement, it has been ensured that employees can avail themselves of their gratuity benefits in full.

For the benefit of both the employee and the employer, it is important for employees to ensure that they maintain accurate records and know about their CTC structure. Employers should also be aware of the rules so that they can maintain a good organization. Use Swipe wisely to ensure your appreciation always comes through with a payment too!

FAQs

1. What is the maximum tax free gratuity limit?

For private sector employees, the tax exempt limit is ₹20 Lakh or lifetime aggregate. For Centra; Government employees, following the 2024-25 DS hikes, the limit was increased to ₹20 Lakh.

2. Does the 1 year rule apply to all employees?

No. Permanent employees still require 5 years of continuous service. The 1 year eligibility rule is specifically for Fixed Term Employees or FTEs on contract.

3. What if my company does not pay within 30 days?

You can file a complaint using Form N with the local Controlling Authority like the Labour Commissioner. They can order the employer to pay the amount along with interest.

4. Is an apprentice eligible for gratuity?

No. under the Payment of Gratuity Act, an apprentice is not considered an employee and is therefore not eligible for gratuity.

5. Is nomination mandatory?

Yes. Every employee who has completed one year of service must file Form F to nominate a family member. This ensures a smooth claim process for your loved ones in case of an unfortunate event.

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