Gratuity: who gets it, how much, and how to claim it

You are leaving a job after several years and want to know whether you will get gratuity, how much, and what to do if HR says "not eligible" or "company policy does not allow it". This guide answers those questions under the law that applies now.

What gratuity is

Gratuity is a lump sum your employer must pay when your employment ends after long service. It is not a gift or a bonus. It is a legal right, and an employer cannot reduce it by contract, appointment letter or "policy". If your contract gives you more, you get the higher amount.

From 21 November 2025, gratuity is governed by Chapter V of the Code on Social Security, 2020, which replaced the Payment of Gratuity Act, 1972. Most of the old rules continue, with some improvements.

Who is covered

The law applies to factories, mines, plantations, ports, railway companies, and shops or establishments that employed 10 or more people on any day in the previous 12 months. Once covered, the establishment stays covered even if staff numbers later fall. The government can extend it to other establishments by notification.

It applies to all employees there, whatever their salary or designation: workers, clerks, supervisors and managers.

When you are entitled

Under Sec 53(1), Code on Social Security, gratuity is payable when your employment ends after at least five years of continuous service. It does not matter whether the job ends by superannuation (retirement age), retirement, resignation, termination or retrenchment.

The five-year condition does not apply in these cases:

• Death or disablement. If you die, or are disabled by accident or disease, gratuity is payable however short the service. On death it goes to your nominee, or to your legal heirs if there is no nominee.
• Fixed-term employees. If you were hired for a fixed period, you are entitled to gratuity on a pro rata (proportionate) basis once you complete one year of service. This is one of the biggest changes in the Code.
• Working journalists qualify after three years.

"Continuous service" includes periods broken by sickness, accident, authorised leave, a lawful strike or a lay-off that was not your fault. Under the old Act, several High Courts treated four years plus 240 days of work in the fifth year as completing five years. Whether the same view applies under the Code is not yet settled, so if you are close to that line, take advice before you resign.

How much you should get

Gratuity is 15 days' wages for every completed year of service, based on your last drawn wages Sec 53(2). Any part of a year above six months counts as a full year. For monthly paid employees, a month is treated as 26 working days, so the formula is:

Last monthly wages × 15 × years of service ÷ 26

For example, if your last basic pay plus dearness allowance was ₹26,000 and you worked 7 years and 8 months, you count 8 years. Gratuity = 26,000 × 15 × 8 ÷ 26 = ₹1,20,000.

"Wages" here means basic pay, dearness allowance and retaining allowance. Under the Code, if allowances such as HRA or conveyance make up more than half of your total pay, the excess is added back to wages. This stops employers from shrinking gratuity by keeping basic pay artificially low.

The Central Government can fix a maximum (ceiling) on gratuity by notification. Under the old Act it was ₹20 lakh. Check the currently notified figure before you calculate a large claim. Your employer can always pay more than the ceiling, and gratuity received is generally tax-exempt up to the limit set under income tax law.

When gratuity can be withheld

Gratuity can be cut or forfeited only on grounds the law lists, and only after you were terminated for that conduct:

• If you were terminated for wilfully causing damage or loss to the employer's property, it can be reduced to the extent of that loss.
• It can be forfeited wholly or partly if you were terminated for riotous or violent conduct, or for an offence involving moral turpitude (a serious dishonest act, such as fraud or theft).

Your employer cannot withhold gratuity because you resigned without serving full notice, joined a competitor, did not "hand over" properly, or have some other pending dispute. Those are separate matters to be settled separately.

Step by step: claiming gratuity

1. Check your nomination. File or update your gratuity nomination with the employer while you are in service. It lets your family claim quickly if something happens to you.
2. Apply in writing. Soon after gratuity becomes payable, send a written application to your employer in the form the rules prescribe (HR usually has it). State your joining date, last day, last wages and the amount you calculate. Send by email and registered post, and keep proof of delivery.
3. Wait 30 days. The employer must work out the amount, inform you, and pay within 30 days of the date it became payable Sec 56(3). If they pay late, they owe simple interest at the notified rate for the delay Sec 56(4).
4. Go to the competent authority. If the employer refuses, pays less, or disputes your eligibility, apply to the competent authority for gratuity, usually a labour officer of the state or central labour department. The authority hears both sides, decides the amount, and can order recovery from the employer.
5. Appeal if needed. Either side can appeal the authority's order to the appellate authority, ordinarily within 60 days. An employer who appeals must first deposit the amount ordered.