Gratuity

In short

• Gratuity is payable when employment ends after at least five years of continuous service s. 53(1).
• The five-year minimum does not apply on death, disablement or the expiry of fixed-term employment s. 53(1), second proviso.
• Pay 15 days’ wages for every completed year of service, counting a part year of more than six months as a full year s. 53(2).
• For a monthly-rated employee, a day’s wages is the monthly wage last drawn divided by 26 s. 53, Explanation 3.
• Pay within 30 days of the date gratuity becomes payable, or pay simple interest for the delay s. 56(3)–(4).

Does this apply to you?

• The gratuity Chapter covers every factory, mine, oilfield, plantation, port and railway company First Schedule.
• It also covers every shop or establishment in which ten or more employees are employed, or were employed on any day of the preceding twelve months First Schedule.
• It does not cover a person who holds a post under the Central or a State Government and is governed by other gratuity rules s. 53, Explanation 1.
• The provisions have been in force since 21 November 2025 s. 53.

What the law requires

When gratuity becomes payable

• On superannuation, retirement, resignation, death, disablement due to accident or disease, or the end of a fixed-term contract, after five years of continuous service s. 53(1).
• For a working journalist the qualifying service is three years instead of five years s. 53(1), first proviso.
• An employee on fixed-term employment is eligible after at least one year of service under the contract rule 33(1)(a).
• “Disablement” means disablement that leaves the employee unable to do the work they could do before the accident or disease s. 53, Explanation 2.

What counts as continuous service

• Service counts as continuous even when interrupted by sickness, accident, leave, lay-off, strike, lock-out or a stoppage of work that is not the employee’s fault s. 54(A).
• An employee is also treated as in continuous service for a year if they actually worked at least 240 days in the preceding twelve calendar months, or 190 days if employed below ground in a mine or in an establishment working fewer than six days a week s. 54(B).
• In a seasonal establishment, an employee is treated as in continuous service if they worked at least seventy-five per cent of the days the establishment operated s. 54(C).

How much to pay

• Pay 15 days’ wages, based on the rate of wages last drawn, for every completed year of service or part of a year above six months s. 53(2).
• For a monthly-rated employee, divide the monthly wage last drawn by 26 and multiply by 15 to get the 15 days’ wages s. 53, Explanation 3.
• For a piece-rated employee, work out daily wages from the average total wages of the three months before termination, leaving out overtime pay s. 53(2), first proviso.
• In a seasonal establishment that does not employ the employee all year, pay 7 days’ wages for each season s. 53(2), second proviso.
• For fixed-term and deceased employees, pay gratuity on a pro rata basis s. 53(2), third proviso.
• “Wages” means the Code’s definition, which includes basic pay, dearness allowance and retaining allowance, and adds back excluded items above one-half of total remuneration s. 2(88).
• The total may not exceed the amount notified by the Central Government s. 53(3). See the note on the limit at the top of this guide.
• Better terms under an award, agreement or contract still apply s. 53(5).

Forfeiture

• If service is terminated for an act, wilful omission or negligence that damaged the employer’s property, gratuity can be forfeited to the extent of the loss s. 53(6)(a).
• Gratuity may be forfeited wholly or partly if service is terminated for riotous or disorderly conduct or violence, or for an offence involving moral turpitude committed in the course of employment s. 53(6)(b).

Nomination, death and insurance

• Each employee who has completed one year of service must make a nomination, in favour of family members if they have a family s. 55.
• On an employee’s death, pay the nominee or, if there is no nomination, the heirs; a minor’s share is deposited with the competent authority s. 53(1), third proviso.
• From a date to be notified, private employers must insure their gratuity liability; an employer with five hundred or more persons may instead set up an approved gratuity fund and seek exemption s. 57(1)–(2).

Numbers at a glance

What	Figure	Where
Qualifying service	five years	s. 53(1)
Working journalists	three years	s. 53(1)
Fixed-term employees	at least one year	rule 33(1)(a)
Rate	15 days’ wages per year	s. 53(2)
Part year that counts	more than six months	s. 53(2)
Day’s wages, monthly-rated	monthly wage ÷ 26	s. 53, Expl. 3
Seasonal employees	7 days’ wages per season	s. 53(2)
Deemed continuous year	240 days worked (190 below ground)	s. 54(B)
Payment deadline	30 days from when payable	s. 56(3)
Ceiling	as notified by the Central Government	s. 53(3)

Records and deadlines

• Take nominations in Form III, ordinarily within ninety days of the employee completing one year of service, and keep them in safe custody rule 32 s. 55(7).
• As soon as gratuity becomes payable, work out the amount and notify the employee and the competent authority in writing, even if no application has been made s. 56(2).
• Employees apply in Form IV, ordinarily within thirty days of gratuity becoming payable rule 33(1)(a).
• Within fifteen days of an application, issue Form V either stating the amount and a payment date no later than the 30th day after the application, or giving reasons for refusal with a copy to the competent authority rule 33(2)(a).
• Pay by demand draft or by credit to the bank account of the employee, nominee or heir rule 33(3).
• If the amount is disputed, deposit the amount you admit with the competent authority s. 56(5)(a).

Not covered here

• Rules made by State Governments, where the State is the appropriate Government. This guide follows the Central Rules.
• Any notified change to the 15-day rate s. 53(2). None has been found.
• Income-tax treatment of gratuity, and court decisions.

In short

• Gratuity is a lump sum your employer pays when your job ends, if you have worked there continuously for at least five years s. 53(1).
• If the job ends because of death or disablement, or because a fixed-term contract has ended, you do not need five years s. 53(1), second proviso.
• You get 15 days’ wages for every year you worked, and a part year of more than six months counts as a full year s. 53(2).
• Your employer must pay within 30 days of the gratuity becoming due, or pay interest for the delay s. 56(3)–(4).

Does this apply to you?

• Yes, if you work in a factory, mine, oilfield, plantation, port or railway company First Schedule.
• Yes, if you work in a shop or other establishment that has ten or more employees, or had that many on any day in the last twelve months First Schedule.
• Probably not, if you hold a government post and have your own gratuity rules s. 53, Explanation 1.

What the law requires

When you can get it

• When you retire, resign, reach superannuation, or your fixed-term contract ends, after five years of continuous service s. 53(1).
• If you are a working journalist, you need three years, not five years s. 53(1), first proviso.
• If you are on a fixed-term contract, you qualify after at least one year of service under the contract rule 33(1)(a).
• If you die, your nominee is paid, or your heirs if you have not made a nomination s. 53(1), third proviso.

Breaks in service

• Time off for sickness, an accident, leave, a lay-off, a strike or a lock-out does not break your continuous service s. 54(A).
• If you actually worked at least 240 days in the twelve months before the date that matters, that year counts as continuous service (190 days if you work below ground in a mine or your workplace works fewer than six days a week) s. 54(B).

How much you get

• For each year counted, you get 15 days’ wages at the rate you were last paid s. 53(2).
• If you are paid monthly, a day’s wage is your monthly wage divided by 26 s. 53, Explanation 3.
• If you are paid by the piece, your daily wage is the average of what you earned in the last three months, not counting overtime s. 53(2), first proviso.
• “Wages” includes basic pay and dearness allowance, and some allowances are added back if they are more than half of your total pay s. 2(88).
• There is an upper limit set by the Central Government s. 53(3). See the note on the limit at the top of this guide.
• If your contract or an agreement gives you a better gratuity, you keep the better terms s. 53(5).

Example You are paid ₹26,000 a month and worked for 7 years and 8 months. That counts as 8 years. One day’s wage is ₹26,000 ÷ 26 = ₹1,000, so 15 days is ₹15,000 a year, and 8 years gives ₹1,20,000. Use the gratuity calculator for your own figures.

When it can be reduced

• If you were dismissed for damaging your employer’s property on purpose or through negligence, the employer can deduct the loss from your gratuity s. 53(6)(a).
• If you were dismissed for riotous or disorderly conduct or violence, or for an offence “involving moral turpitude” committed in the course of your work, gratuity can be withheld in part or in full s. 53(6)(b).

Numbers at a glance

What	Figure	Where
Years needed	five years (three years for working journalists)	s. 53(1)
Fixed-term contracts	at least one year	rule 33(1)(a)
Amount	15 days’ wages per year	s. 53(2)
Part year that counts	more than six months	s. 53(2)
Day’s wage if paid monthly	monthly wage ÷ 26	s. 53, Expl. 3
Employer must pay within	30 days	s. 56(3)

What to do if it isn’t followed

• Apply to your employer in Form IV, ordinarily within thirty days of the gratuity becoming due; a late application must still be considered if you give a good reason rule 33(1).
• Your employer must reply in Form V within fifteen days, either with the amount and a payment date or with reasons for refusing rule 33(2)(a).
• If your employer refuses, pays too little, or does not reply in time, apply to the competent authority in Form VI within one hundred and eighty days rule 33(4).
• The competent authority should decide within six months, extendable by three months rule 33(5).
• If you disagree with the decision, you can appeal within sixty days s. 56(8).
• If your employer still does not pay, apply to the competent authority in Form IX to recover the amount rule 33(13) s. 129.
• Make sure you have made a nomination once you complete one year of service, so your family is paid without delay s. 55(1).

Not covered here

• State rules, where your State Government is the appropriate Government; forms and time limits may differ.
• Income tax on gratuity, and court decisions.