Gratuity in India 2026: Eligibility, 5-Year Rule, Fixed-Term Employees, Calculation, Forfeiture, 30-Day Payment & Recovery

By Adv. Govind Bali | Updated: 21 August 2026

Gratuity law in India changed materially after the labour codes became operative from 21 November 2025. For current claims arising after implementation, the principal statutory framework is now Chapter V of the Code on Social Security, 2020, read with the Social Security (Central) Rules, 2026 and the applicable State rules where the State Government is the appropriate government.

This matters because many online gratuity articles still rely entirely on the Payment of Gratuity Act, 1972, quote the old basic-pay-plus-DA approach without considering the new statutory wage definition, or state that every employee must complete five full calendar years. The current law is more nuanced, especially for fixed-term employees, death or disablement, the 50% wage-definition rule, forfeiture, nomination, claims and recovery.

Gratuity law in 2026: quick position

Issue	Current position
Principal law	Code on Social Security, 2020, Chapter V
Effective labour-code regime	From 21 November 2025
Normal eligibility	Five years of continuous service
Death / disablement	Five-year requirement not necessary
Fixed-term employment	Five-year requirement does not apply; Central Rules require at least one year under the fixed-term contract
Working journalists	Three years in place of five years
Normal rate	15 days’ wages for each completed year or qualifying part over six months
Monthly-rated formula	Last drawn monthly wages ÷ 26 × 15 × qualifying years
Current statutory ceiling	₹20 lakh, subject to better contractual/award terms
Payment deadline	Within 30 days from the date gratuity becomes payable
Delayed payment	Interest ordinarily payable, subject to the statutory exception
Employee application	Form IV under Central Rules, ordinarily within 30 days
Dispute before competent authority	Form VI under Central Rules, generally within 180 days of the relevant cause
Appeal	60 days, extendable by a further 60 days on sufficient cause
Recovery after non-payment	Form IX / Section 129 recovery certificate route

Which establishments are covered?

The First Schedule to the Code on Social Security makes Chapter V applicable to:

every factory, mine, oilfield, plantation, port and railway company; and
every shop or establishment in which 10 or more employees are employed, or were employed on any day of the preceding 12 months; and
such additional shops or establishments as may be notified by the appropriate Government.

The coverage question should therefore be checked at establishment level before calculating entitlement. A private-sector employee does not need to be a “worker” under industrial-dispute law in order to be an “employee” for gratuity purposes. Senior managerial and white-collar personnel can also fall within the gratuity framework if the establishment and employment relationship are otherwise covered.

When does gratuity become payable under Section 53?

Section 53 provides that gratuity is payable on termination of employment after the employee has rendered the required continuous service. The listed events include:

superannuation;
retirement;
resignation;
death;
disablement due to accident or disease;
termination of the contract period under fixed-term employment; and
any other event notified by the Central Government.

For a normal resignation or retirement, the general threshold remains five years of continuous service. However, the five-year requirement does not apply where termination is due to death, disablement, expiration of fixed-term employment, or another notified event falling within the statutory exception.

The five-year rule: what does “continuous service” mean?

Section 54 defines continuous service broadly. Service can remain continuous even where actual attendance is interrupted by sickness, accident, authorised leave, certain unauthorised absence not formally treated as a break in service, lay-off, strike, lock-out or cessation of work not caused by the employee.

Where the employee does not satisfy the uninterrupted-service test, the Code contains deemed-continuous-service thresholds. For a normal establishment, an employee may be deemed to have completed one year of continuous service where the employee has actually worked for at least 240 days in the relevant preceding 12-month period. The threshold is 190 days for employees below ground in mines and establishments working less than six days per week. Corresponding six-month tests use 120 days and 95 days respectively.

Does 4 years and 240 days automatically equal five years?

This is one of the most searched gratuity questions in India, and it should not be answered with an unqualified “yes” for every employee across the country.

Under the former Payment of Gratuity Act, some High Courts—including the Madras High Court in Mettur Beardsell Ltd. v. Regional Labour Commissioner and the Kerala High Court in Sreeja B.—used the deemed-continuous-service provision to treat 240 days in the fifth year as sufficient in the facts before them. Other judicial approaches have been less expansive, and there is no simple nationwide Supreme Court rule declaring that every employee who has served 4 years plus 240 days must automatically receive gratuity.

The current Code continues to state in Section 53 that ordinary gratuity becomes payable after not less than five years of continuous service, while Section 54 separately defines deemed continuous service. Because the statutory language and the old case law must be read together, employees leaving shortly before the fifth anniversary should not rely on an internet calculator alone. The exact jurisdiction, dates, working pattern, attendance record and applicable precedent matter.

Fixed-term employees: the major 2026 change

Fixed-term employees receive special treatment. Section 53 removes the normal five-year requirement where employment ends on expiration of fixed-term employment. The Social Security (Central) Rules, 2026 then provide the operational threshold: a fixed-term employee becomes eligible where the employee has rendered service under the contract for at least one year.

The Ministry of Labour and Employment’s March 2026 FAQ confirms that fixed-term employment covers employees directly engaged by the employer and that a fixed-term employee becomes eligible for gratuity upon rendering one year of service under the contract.

The Central Rules further provide that, after the first year, a subsequent period exceeding six months but less than one year is rounded to one additional year for the relevant computation.

For a broader explanation of this employment model, see Fixed-Term Employment in India After Labour Codes.

Contract labour is not the same as fixed-term employment

The Ministry has expressly clarified that fixed-term employment covers employees directly engaged by the employer. Contract labour engaged through a contractor is different. In its 2026 FAQ, the Ministry states that, for contract labour, the contractor is the employer responsible for gratuity under Section 53 when the statutory conditions are met.

Principal employers should nevertheless audit contractor gratuity exposure as part of vendor due diligence because long-serving contract labour can create significant compliance and continuity risks. See also our guide on contract labour compliance after the Labour Codes.

How gratuity is calculated in 2026

For every completed year of service or part thereof in excess of six months, Section 53 provides gratuity at the rate of 15 days’ wages, or such other number of days as may be notified, based on the employee’s last drawn wages.

For a monthly-rated employee, the Code expressly gives the formula:

Gratuity = Last drawn monthly wages ÷ 26 × 15 × qualifying years of service

Example 1: 7 years and 8 months

Assume the employee’s last drawn statutory wages are ₹60,000 per month and service is 7 years 8 months. Because the part-year exceeds six months, it is counted as an additional year.

₹60,000 ÷ 26 × 15 × 8 = approximately ₹2,76,923

Example 2: 7 years and 5 months

If the same employee has served 7 years 5 months, the extra five months do not cross the statutory “in excess of six months” threshold.

₹60,000 ÷ 26 × 15 × 7 = approximately ₹2,42,308

What counts as “wages” for gratuity after 21 November 2025?

This is another major change from older gratuity articles. The Code on Social Security uses the statutory definition of “wages” in Section 2(88), which is aligned with the new labour-code wage structure. The definition includes specified remuneration and excludes listed components, but the exclusions are subject to the statutory 50% mechanism.

The Ministry’s March 2026 FAQ specifically clarifies that gratuity calculation is governed by the new wage definition from 21 November 2025. It also states that payments not falling within the included or excluded wage components prescribed by Section 2(88) are not to be automatically imported into gratuity merely because they appear in CTC.

For employees separating on or after 21 November 2025, the Ministry has further clarified that gratuity is based on the last drawn wage at the time of superannuation, retirement, resignation, death or other qualifying event under the new framework. It is therefore misleading to split the employee’s career mechanically into an “old Act basic+DA period” and a “new Code period” without examining the Ministry’s clarification and the actual wage structure.

Is gratuity calculated on CTC?

No. CTC is an internal compensation concept, not the statutory gratuity formula. An employee may have a CTC of ₹20 lakh or ₹40 lakh, but gratuity is computed from the legally relevant last drawn “wages” under the Code, not by multiplying total CTC.

Likewise, showing a notional gratuity accrual as a line item in CTC does not mean the employer can refuse the statutory gratuity when it becomes payable. CTC disclosure and statutory entitlement are different concepts.

Current maximum gratuity ceiling

The Ministry’s current labour-code FAQ states that the notified maximum gratuity is ₹20 lakh. Section 53 also preserves the employee’s right to better terms under an award, agreement or contract.

This distinction is important. The statutory ceiling does not prevent an employer from promising a more favourable gratuity benefit contractually or under a company scheme. If the employment contract, settlement, award or trust rules provide better terms, those terms require separate analysis.

Working journalists

Section 53 specifically provides that, for a working journalist falling within the statutory definition carried into the provision, the expression “five years” is treated as three years. This special rule should not be generalized to ordinary employees.

Death and disablement

Where employment terminates because of death or disablement due to accident or disease, completion of five years is not necessary. In the case of death, gratuity is payable to the nominee or, if no valid nomination exists, to the heirs. Where the nominee or heir is a minor, the minor’s share is dealt with through the competent authority in the manner contemplated by the Code and rules.

The Code also provides for pro-rata gratuity in the case of a deceased employee.

Nomination under Section 55

Every employee who has completed one year of service must make a nomination in the prescribed form and manner. The employee may distribute gratuity among more than one nominee.

If the employee has a family at the time of nomination, the nomination must be made in favour of one or more family members. A nomination in favour of a non-family person in such circumstances is void. Where the employee initially has no family, nomination may be made in favour of another person, but it becomes invalid when the employee later acquires a family and a fresh nomination becomes necessary.

Employees should update nomination records after marriage, divorce, death of a nominee or other major family change instead of waiting until separation.

Can gratuity be forfeited for misconduct?

Gratuity is a statutory benefit and cannot be forfeited merely because an employee was dismissed for “misconduct” in a general sense. Section 53(6) identifies the situations in which forfeiture may occur.

First, where an employee’s services are terminated for an act, wilful omission or negligence causing damage or loss to the employer’s property, gratuity may be forfeited only to the extent of the damage or loss actually caused.

Second, gratuity may be wholly or partially forfeited if the employee’s services are terminated for riotous or disorderly conduct or another act of violence.

Third, gratuity may be wholly or partially forfeited where services are terminated for an act constituting an offence involving moral turpitude, provided the offence was committed in the course of employment.

Dismissal does not automatically erase gratuity

The forfeiture provision requires careful factual and procedural application. Employers should not issue a dismissal order stating “gratuity forfeited” as an automatic collateral consequence.

Recent 2026 High Court litigation under the materially similar Section 4(6) of the former Payment of Gratuity Act reinforces two practical requirements particularly in loss cases: the employer should identify and quantify the actual loss, and the employee should receive a fair opportunity before gratuity is forfeited. In Jalgaon District Central Cooperative Bank v. Dinesh Mohanlal Chandankar (Bombay High Court, 7 July 2026), the Court sustained the view that forfeiture could not be supported where actual loss had not been properly determined and the employee had not been given an independent forfeiture notice.

The reasoning remains highly relevant because Section 53(6) carries forward the same core distinction between loss-based forfeiture and the specific categories of violent or morally turpitudinous conduct.

Can the employer forfeit the entire gratuity for financial loss?

Not under the loss-based limb merely because the misconduct was serious. Section 53(6)(a) limits forfeiture to the extent of the damage or loss caused. If the proved loss is ₹1 lakh and statutory gratuity is ₹8 lakh, the employer cannot ordinarily use the loss limb alone to confiscate the entire ₹8 lakh.

Where an employer seeks total or partial forfeiture under the violence or moral-turpitude limbs, the relevant statutory ingredients must independently exist.

30-day payment deadline under Section 56

Once gratuity becomes payable, the employer has a statutory duty to determine the amount even if the employee has not first filed an application. The employer must give written notice of the amount to the person entitled and the competent authority.

The employer must arrange payment within 30 days from the date gratuity becomes payable.

If payment is delayed beyond that period, the employer is ordinarily liable to simple interest from the date gratuity became payable until actual payment. The statutory exception applies where the delay is attributable to the employee and the employer has obtained written permission from the competent authority for delayed payment on that ground.

This gratuity deadline should be distinguished from the separate two-working-day wage-payment rule applicable to final wages under the Code on Wages. For a broader exit-payment analysis, see Notice Period & Full-and-Final Settlement in India.

Employee application: Form IV under the 2026 Central Rules

Rule 33 of the Social Security (Central) Rules, 2026 provides that an eligible employee, or an authorised person, should ordinarily apply to the employer in Form IV within 30 days from the date gratuity became payable.

Where the retirement or superannuation date is known, the employee may apply before the event. A nominee ordinarily applies within 30 days, while a legal heir ordinarily has one year under the Central Rules.

Critically, a delayed claim is not automatically extinguished. Rule 33 expressly provides that an application filed after the specified period may still be entertained on sufficient cause and that no gratuity claim is invalid merely because the claimant did not present the application within the stated period.

Employer response: Form V

Under the Central Rules, the employer should, within 15 days of receiving the application, either:

issue Form V accepting the claim, specifying the amount and fixing the payment date; or
issue Form V rejecting the claim, with reasons, and endorse a copy to the competent authority.

Payment under the Central Rules may be made through demand draft or by credit to the eligible employee’s, nominee’s or legal heir’s bank account.

What if the employer refuses, underpays or does not respond?

Rule 33 provides a direct dispute route to the competent authority. An employee, nominee or legal heir may move the authority in Form VI where the employer:

refuses to accept the nomination or application;
offers an amount lower than what is claimed to be legally due;
rejects eligibility; or
fails to issue the required notice within the prescribed period.

Under the Central Rules, the Form VI application is generally to be made within 180 days of the relevant cause, subject to the governing rule and the authority’s treatment of delay.

Disputed gratuity: admitted amount must be deposited

Section 56 is designed to prevent an employer from using a dispute over one part of the claim as a reason to retain everything. Where there is a dispute over the amount, admissibility or person entitled, the employer must deposit with the competent authority the amount that the employer admits is payable.

The competent authority may then conduct an inquiry, receive evidence, compel production of documents and determine the amount legally due.

Appeal against the competent authority’s order

An aggrieved person may appeal within 60 days from receipt of the order. The appellate authority may extend the period by a further 60 days where sufficient cause is shown.

An employer’s appeal is subject to an important pre-deposit protection: the appeal is not to be admitted unless the employer produces the required certificate of deposit or deposits the amount as contemplated by Section 56.

For Central Government establishments, the Ministry issued notifications in May 2026 appointing appellate authorities under Section 56(8), including specified Deputy Chief Labour Commissioners (Central) for their respective jurisdictions.

Recovery when the employer still does not pay

Winning a gratuity order is not the end of the enforcement framework. Where the employer fails to comply with the competent/appellate authority’s direction, the Central Rules provide Form IX — Application for Recovery of Gratuity.

The claimant may seek issuance of a recovery certificate under Section 129. The Code permits coercive recovery mechanisms through the Recovery Officer, including attachment and sale of the establishment’s or employer’s property in accordance with the statutory framework.

This makes gratuity materially different from an ordinary unsecured contractual claim: the Code creates a dedicated administrative determination and statutory recovery machinery.

Documents an employee should preserve

appointment letter and all amendments;
salary slips and wage structure;
bank statements showing salary credits;
PF/ESI records where relevant;
joining date proof;
resignation and acceptance;
termination or retirement order;
attendance/leave records where continuous service is disputed;
fixed-term contract and renewals;
nomination record;
F&F statement;
employer’s gratuity calculation;
emails refusing or delaying payment;
Form IV/Form V/Form VI correspondence and proof of service.

Employer gratuity audit checklist

Employers should not wait until resignation to calculate gratuity exposure. A defensible HR/payroll system should:

identify every establishment to which Chapter V applies;
map employee joining dates and continuity accurately;
flag employees approaching five years;
separately flag fixed-term employees approaching one year;
apply the post-21 November 2025 wage definition correctly;
accrue gratuity liability in payroll/finance records;
maintain nomination records after one year of service;
trigger automatic gratuity determination on every qualifying separation;
pay within 30 days;
calculate interest where payment is delayed;
use forfeiture only after statutory and procedural review;
retain proof of calculation and payment;
track Form IV/Form V/Form VI and appeal timelines.

Common gratuity mistakes in 2026

Using the old law without checking the labour-code implementation date: current claims must be mapped to the Code on Social Security.
Calculating only on “basic + DA” by habit: the statutory wage definition must now be examined.
Treating CTC as the formula: CTC is not the statutory wage base.
Ignoring fixed-term employees: one-year eligibility under the Central Rules is a major compliance change.
Assuming every 11-month contract avoids gratuity forever: repeated or continuous contractual arrangements require factual review.
Withholding gratuity because F&F is disputed: gratuity has its own statutory mechanism.
Forfeiting gratuity automatically on dismissal: Section 53(6) requires specific statutory grounds.
Failing to quantify loss: loss-based forfeiture is limited to actual loss.
Waiting for an employee application before calculating: Section 56 requires the employer to determine gratuity once it becomes payable.
Missing the 30-day payment deadline: delayed payment can attract interest.

Frequently asked questions

Is gratuity payable on resignation?

Yes. For an ordinary employee, resignation is a qualifying event once the employee has completed the required five years of continuous service, subject to the statutory exceptions and coverage rules.

Is five years compulsory in every case?

No. Five years is not required where employment ends because of death, disablement or expiration of fixed-term employment. Working journalists have a special three-year rule. Other notified events may also qualify.

Is a fixed-term employee entitled after one year?

Under the Social Security (Central) Rules, 2026, a fixed-term employee is eligible where service under the contract is at least one year. The Ministry’s March 2026 FAQ confirms the one-year position.

What is the gratuity formula?

For a monthly-rated employee: last drawn monthly wages ÷ 26 × 15 × qualifying years of service, subject to the current ceiling and any better contractual terms.

Is the maximum gratuity ₹20 lakh?

The Ministry’s current FAQ states that the notified statutory maximum is ₹20 lakh. A better award, agreement or employment contract may provide a higher benefit.

Can gratuity be denied because the employee was dismissed?

Not automatically. Forfeiture is limited to the statutory grounds in Section 53(6), and the relevant factual and procedural requirements must be satisfied.

How soon must gratuity be paid?

Section 56 requires payment within 30 days from the date gratuity becomes payable. Delay ordinarily attracts statutory interest.

Do I lose the claim if I did not file within 30 days?

No. The Central Rules expressly state that a delayed gratuity application may be entertained on sufficient cause and the claim is not invalid merely because it was not filed within the stated period.

What form is used for a gratuity claim under the Central Rules?

Form IV is the employee/nominee/legal-heir application to the employer. Form VI is used to seek a direction from the competent authority in a dispute, and Form IX is used for recovery after non-compliance with the authority’s direction.

Primary legal sources

This article is published for general legal information and public legal awareness. Gratuity entitlement can depend on establishment coverage, employee status, appropriate Government, service dates, wage structure, fixed-term status, State rules and the facts of separation. It does not constitute solicitation or case-specific legal advice.

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