Think back to your first job offer. The salary caught your eye. Maybe the perks too. But gratuity? Most people ignore it until the day they leave a job. That’s a mistake—especially in 2026.
The Gratuity Rules 2026 quietly change who qualifies, how much you get, and how fair the calculation really is. If you’re a salaried employee, a fixed-term worker, or even planning your next switch, this directly affects your money.
What Is Gratuity, Really?
Gratuity is a lump-sum amount your employer pays as a reward for long service. It’s governed by the Payment of Gratuity Act, 1972. But here’s the twist. Changes under the Social Security Code, 2020 are now fully active in 2026, and they fix some long-standing gaps.
The biggest winners? Fixed-term employees and people with low basic pay but high allowances.
Who Is Eligible Under Gratuity Rules 2026?
Traditionally, gratuity required five years of continuous service with the same employer. That rule still applies to permanent employees.
But the Gratuity Rules 2026 bring a major relief for fixed-term employees. If you’re on a fixed-term contract, you now qualify after just one year of continuous service.
Think about IT professionals, factory workers, and project-based staff. Many switch roles often. Earlier, gratuity felt out of reach. Now, it’s not.
How Gratuity Is Calculated in 2026
The formula itself hasn’t changed, which is good news. It’s simple and predictable.
Gratuity = (Last drawn salary × 15 ÷ 26) × Completed years of service
Salary here means basic pay plus dearness allowance. And yes, if your last year crosses six months, it counts as a full year.
The 50 Percent Wage Rule Changes the Game
Here’s where things get interesting.
Under the new rules, wages used for gratuity calculation must be at least 50 percent of your total remuneration (CTC). If your basic pay plus dearness allowance is lower than that, it gets adjusted upward.
Why does this matter? Many companies structure salaries with low basic pay and high allowances. Earlier, that reduced gratuity. In 2026, that gap shrinks. For many employees, the final payout increases without changing jobs.
Old vs New Gratuity Rules at a Glance
| Aspect | Old Rule (Pre-2025) | New Rule (2026 Onward) |
|---|---|---|
| Eligibility – Permanent | 5 years service | 5 years service |
| Eligibility – Fixed-Term | 5 years service | 1 year service |
| Wage Base | Basic + DA | Minimum 50% of CTC |
| Maximum Tax-Free Limit | Rs. 20 lakh | Rs. 20 lakh |
Tax Rules and Payment Timeline
Gratuity up to Rs. 20 lakh remains fully tax-free for employees covered under the Act. Employers must release the payment within 30 days of it becoming due. Any delay attracts simple interest at 10 percent per year.
So yes, delays now cost employers real money.
What You Should Do as an Employee
Check your salary structure. Look at your basic pay percentage. If you’re on a fixed-term contract, track your service period carefully. Keep your appointment letter, salary slips, and exit documents safe.
If you’re close to eligibility, talk to HR early. It avoids confusion later.