What it means
Gratuity rules now sit in the Code on Social Security, 2020, in force from 21 Nov 2025, which carries over the Payment of Gratuity Act. An employee usually qualifies after 5 years of continuous service (no minimum on death or disablement), and the Code lets fixed-term employees qualify after one year. The standard formula is:
Gratuity = last drawn monthly wages × 15 ÷ 26 × completed years of service
A part year of more than six months counts as a full year. The amount is capped (₹20 lakh under the earlier Act). The Codes’ wider definition of “wages” can raise the base for staff on a low basic salary.
Example
Meena worked at Kaveri Agencies for 8 years and 7 months; her last basic + DA was ₹30,000 a month.
| Step | Value |
|---|---|
| Years counted | 9 |
| 30,000 × 15 ÷ 26 | ₹17,308 |
| × 9 years | ₹1,55,769 |
Kaveri provides for this every month (about 4.81% of basic) so the payout does not hit one month’s profit.
Common mistakes
- Not providing for gratuity in the books until someone leaves.
- Missing the one-year eligibility of fixed-term staff under the Code.
- Working out wages on basic alone when allowances push basic below half of pay.
In MyRecords
MyRecords has a gratuity rule for India using the 15/26 formula on completed years of service, and the full and final statement on exit lists the gratuity due. Check how the Code’s changes, such as fixed-term eligibility and the wages definition, apply to you with your CA.