Gratuity Under New Labour Code India 2026
2 Big Changes — Higher Payout, Earlier Eligibility
The new Labour Code brings two major changes to gratuity: eligibility drops from 5 years to just 1 year, and the 50% Basic wage rule means your gratuity base is significantly higher. Calculate your updated gratuity payout below.
Change 1
Eligibility: 5 Years → 1 Year
Under the Social Security Code 2020, gratuity eligibility reduces from 5 continuous years of service to just 1 year. Employees who leave after 1 year are now entitled to gratuity — a major shift from the Payment of Gratuity Act 1972.
Change 2
50% Basic = Larger Gratuity Payout
Gratuity formula uses Basic salary as base. With Basic now ≥ 50% of CTC (up from ~40%), the same formula produces a much higher payout. For ₹10 LPA CTC at 10 years, gratuity increases by over ₹48,000.
📐 Gratuity Formula — Unchanged, But Base Is Now Higher
The formula itself has not changed under the new Labour Code. But because Basic salary is now higher (50% of CTC vs ~40% earlier), the output is significantly larger.
Gratuity = (Basic Salary ÷ 26) × 15 × Years of Service
÷ 26 — Working days in a month (not calendar days)
× 15 — 15 days of Basic per year of service
× Years — Rounded to nearest 6 months (≥ 6 months counts as 1 full year)
Old Calculation (Basic ~40%)
Basic = ₹40,000 (₹12L CTC)
= (40,000 ÷ 26) × 15 × 5 years
= ₹1,15,385
New Calculation (Basic 50%) ✅
Basic = ₹50,000 (₹12L CTC)
= (50,000 ÷ 26) × 15 × 5 years
= ₹1,44,231 (+₹28,846)
📋 About These Examples
The comparison tables below are illustrative examples based on standard assumptions. Actual payout depends on your employer's exact salary structure.
- •Basic is set at 50% of monthly CTC in the new structure and ~40% in the old structure.
- •Old structure assumed Basic at exactly 40% of monthly CTC for clean comparison.
- •Gratuity formula used: (Basic ÷ 26) × 15 × Years of Service.
- •Years rounded to nearest full year — 6+ months counts as 1 additional year.
- •Gratuity is an employer-funded benefit — never deducted from employee salary.
- •1-year eligibility under new Labour Code is per Social Security Code 2020 (effective Nov 21, 2025).
Before vs After — Gratuity Payout for Every CTC Range
Old structure: Basic ~40% of CTC. New structure: Basic 50% of CTC. Gratuity = (Basic ÷ 26) × 15 × Years.
₹3,00,000 Annual CTC
₹25,000/month
Old Basic
₹10,000
New Basic
₹12,500
| Scenario | Old Gratuity (Basic ~40%) | New Gratuity (Basic 50%) | Difference |
|---|---|---|---|
| 1 Year ServiceNew Rule Only | Not eligible | ₹7,212 | ₹7,212 |
| 5 Years Service | ₹28,846 | ₹36,058 | +₹7,212 |
| 10 Years Service | ₹57,692 | ₹72,115 | +₹14,423 |
✅ With new Labour Code — 5 year gratuity increases by +₹7,212 and 10 year by +₹14,423. Additionally, under the 1-year rule, employees get ₹7,212 even after just 1 year of service.
₹6,00,000 Annual CTC
₹50,000/month
Old Basic
₹20,000
New Basic
₹25,000
| Scenario | Old Gratuity (Basic ~40%) | New Gratuity (Basic 50%) | Difference |
|---|---|---|---|
| 1 Year ServiceNew Rule Only | Not eligible | ₹14,423 | ₹14,423 |
| 5 Years Service | ₹57,692 | ₹72,115 | +₹14,423 |
| 10 Years Service | ₹1,15,385 | ₹1,44,231 | +₹28,846 |
✅ With new Labour Code — 5 year gratuity increases by +₹14,423 and 10 year by +₹28,846. Additionally, under the 1-year rule, employees get ₹14,423 even after just 1 year of service.
₹8,40,000 Annual CTC
₹70,000/month
Old Basic
₹28,000
New Basic
₹35,000
| Scenario | Old Gratuity (Basic ~40%) | New Gratuity (Basic 50%) | Difference |
|---|---|---|---|
| 1 Year ServiceNew Rule Only | Not eligible | ₹20,192 | ₹20,192 |
| 5 Years Service | ₹80,769 | ₹1,00,962 | +₹20,193 |
| 10 Years Service | ₹1,61,538 | ₹2,01,923 | +₹40,385 |
✅ With new Labour Code — 5 year gratuity increases by +₹20,193 and 10 year by +₹40,385. Additionally, under the 1-year rule, employees get ₹20,192 even after just 1 year of service.
₹10,00,000 Annual CTC
₹83,333/month
Old Basic
₹33,333
New Basic
₹41,667
| Scenario | Old Gratuity (Basic ~40%) | New Gratuity (Basic 50%) | Difference |
|---|---|---|---|
| 1 Year ServiceNew Rule Only | Not eligible | ₹24,038 | ₹24,038 |
| 5 Years Service | ₹96,152 | ₹1,20,192 | +₹24,040 |
| 10 Years Service | ₹1,92,304 | ₹2,40,385 | +₹48,081 |
✅ With new Labour Code — 5 year gratuity increases by +₹24,040 and 10 year by +₹48,081. Additionally, under the 1-year rule, employees get ₹24,038 even after just 1 year of service.
₹12,00,000 Annual CTC
₹1,00,000/month
Old Basic
₹40,000
New Basic
₹50,000
| Scenario | Old Gratuity (Basic ~40%) | New Gratuity (Basic 50%) | Difference |
|---|---|---|---|
| 1 Year ServiceNew Rule Only | Not eligible | ₹28,846 | ₹28,846 |
| 5 Years Service | ₹1,15,385 | ₹1,44,231 | +₹28,846 |
| 10 Years Service | ₹2,30,769 | ₹2,88,462 | +₹57,693 |
✅ With new Labour Code — 5 year gratuity increases by +₹28,846 and 10 year by +₹57,693. Additionally, under the 1-year rule, employees get ₹28,846 even after just 1 year of service.
₹15,00,000 Annual CTC
₹1,25,000/month
Old Basic
₹50,000
New Basic
₹62,500
| Scenario | Old Gratuity (Basic ~40%) | New Gratuity (Basic 50%) | Difference |
|---|---|---|---|
| 1 Year ServiceNew Rule Only | Not eligible | ₹36,058 | ₹36,058 |
| 5 Years Service | ₹1,44,231 | ₹1,80,288 | +₹36,057 |
| 10 Years Service | ₹2,88,462 | ₹3,60,577 | +₹72,115 |
✅ With new Labour Code — 5 year gratuity increases by +₹36,057 and 10 year by +₹72,115. Additionally, under the 1-year rule, employees get ₹36,058 even after just 1 year of service.
Quick Summary — Gratuity Payout Increase at 5 Years Service
| Annual CTC | Old Basic | New Basic | Old Gratuity (5yr) | New Gratuity (5yr) | Increase | New 1yr Payout |
|---|---|---|---|---|---|---|
| ₹3,00,000 | ₹10,000 | ₹12,500 | ₹28,846 | ₹36,058 | +₹7,212 | ₹7,212 |
| ₹6,00,000 | ₹20,000 | ₹25,000 | ₹57,692 | ₹72,115 | +₹14,423 | ₹14,423 |
| ₹8,40,000 | ₹28,000 | ₹35,000 | ₹80,769 | ₹1,00,962 | +₹20,193 | ₹20,192 |
| ₹10,00,000 | ₹33,333 | ₹41,667 | ₹96,152 | ₹1,20,192 | +₹24,040 | ₹24,038 |
| ₹12,00,000 | ₹40,000 | ₹50,000 | ₹1,15,385 | ₹1,44,231 | +₹28,846 | ₹28,846 |
| ₹15,00,000 | ₹50,000 | ₹62,500 | ₹1,44,231 | ₹1,80,288 | +₹36,057 | ₹36,058 |
💡 Both changes work in your favour as an employee. Higher Basic means more gratuity at every tenure. The 1-year rule means you no longer lose gratuity if you leave or are laid off before 5 years.
Gratuity Eligibility — Old Rules vs New Labour Code
| Rule | Old Law (Payment of Gratuity Act 1972) | New Labour Code (Social Security Code 2020) |
|---|---|---|
| Minimum Service | 5 continuous years | 1 continuous year ✅ |
| Eligibility on Resignation | Only after 5 years | After just 1 year ✅ |
| Eligibility on Death/Disability | No minimum period | No minimum period |
| Eligibility on Termination | 5 years required | 1 year required ✅ |
| Part-Year Rule | 6+ months = 1 full year | 6+ months = 1 full year |
| Basic Wage Definition | Employer-defined (often 30–40%) | ≥ 50% of total wages ✅ |
| Organisations Covered | 10+ employees | 10+ employees |
| Calculation Formula | (Basic ÷ 26) × 15 × Years | (Basic ÷ 26) × 15 × Years (same) |
| Tax Exemption Limit | ₹20 lakh | ₹20 lakh (unchanged) |
📌 Important: Gratuity Is an Employer Cost — Not a Deduction from Your Pay
Many employees worry that higher gratuity under the new Labour Code means a larger deduction from their salary. This is incorrect.
❌ Myth
"Higher Basic under new Labour Code means higher gratuity deduction from my monthly salary."
✅ Fact
Gratuity is provisioned by the employer at 4.81% of your Basic per month as a future liability. It never appears on your salary slip as a deduction. You receive it as a lump sum when you leave (after eligible service period).
Calculate your updated gratuity payout
Enter Basic salary and years of service → get exact payout under new Labour Code. Free tool.
Frequently Asked Questions
What is the new gratuity rule under the new Labour Code 2025?▼
Two major changes: (1) Eligibility reduces from 5 years to 1 year of continuous service under Social Security Code 2020. (2) Basic salary must be ≥ 50% of CTC — making the gratuity calculation base larger. The formula (Basic ÷ 26 × 15 × Years) remains the same but produces a higher payout.
Does gratuity eligibility change to 1 year under new Labour Code?▼
Yes. Under the Social Security Code 2020 (effective November 21, 2025), gratuity eligibility threshold reduces from 5 continuous years to 1 year. Employees who resign, get terminated, or retire after just 1 year of service are now eligible for gratuity.
How does the 50% Basic rule increase my gratuity payout?▼
Gratuity = (Basic ÷ 26) × 15 × Years. Since Basic now must be ≥ 50% of CTC (up from ~40%), the same formula produces 20–25% higher gratuity for the same CTC and tenure. For ₹12 LPA at 5 years: old = ₹1,15,385 vs new = ₹1,44,231 — an increase of ₹28,846.
Is gratuity deducted from salary under the new Labour Code?▼
No. Gratuity is never deducted from your monthly salary. It is an employer-funded obligation provisioned at 4.81% of Basic per month. When employers hold CTC constant and increase gratuity provision (due to higher Basic), gross salary reduces slightly — but this is not a deduction. You receive it as a lump sum after your eligible service.
What is the maximum tax-free gratuity under new Labour Code?▼
The tax exemption limit for gratuity under Section 10(10) of the Income Tax Act remains ₹20 lakh for private sector employees. This limit was raised from ₹10 lakh in 2019 and has not changed under the new Labour Code. Gratuity received up to ₹20 lakh is fully tax-free.