The Gratuity Rules 2025 came into effect on November 21, 2025, with the implementation of four new Labour Codes in India. These changes expand coverage, simplify eligibility for fixed-term employees, and broaden the wage base for calculations, benefiting millions of workers across sectors.
Easier Eligibility for Fixed-Term Employees
Previously, gratuity required five years of continuous service. Now, fixed-term contract workers qualify after just one year of service. This brings them at par with permanent employees, offering faster financial security in today’s gig and contract-heavy job market.
Expanded Wage Definition
The new codes mandate that basic pay plus dearness allowance must form at least 50% of total cost-to-company. This wider wage base increases gratuity amounts for many employees, as calculations use a higher salary figure instead of just basic pay.
Greater Responsibility on Employers
Principal employers now bear direct liability for gratuity payments to contract workers. This ensures timely payouts even if the contractor defaults. The reforms also lay groundwork for including platform and gig workers under social security nets.
Payment Timeline and Tax Benefits
Employers must pay gratuity within 30 days of it becoming due, with interest for delays. The tax-exempt limit remains ₹20 lakh for private sector employees. Government employees enjoy full exemption without ceiling.
| Feature | Details |
|---|---|
| Eligibility (Permanent) | 5 years continuous service |
| Eligibility (Fixed-Term) | 1 year continuous service |
| Calculation Formula | (Last drawn wages × 15/26) × Years of service |
| Minimum Wage Component | Basic + DA ≥ 50% of total CTC |
| Tax-Free Limit (Private) | ₹20 lakh |
| Payment Deadline | Within 30 days (interest on delay) |
Why Gratuity Rules 2025 Matter
These updates provide stronger retirement security amid frequent job changes and rising costs. Higher potential payouts and wider coverage help employees build better corpus for post-retirement needs. The parity for contract workers reduces inequality in benefits.
Review your employment contract and consult HR for exact impact under the new Gratuity Rules 2025. Stay informed through official Ministry of Labour notifications.
Also read: DA Hike 2025: Latest Update on 3% Rise, Arrears and Payment Timeline