Gratuity Rules 2025: If you’ve ever switched jobs or are gearing up for retirement, you probably know how crucial gratuity is. It might seem insignificant at first, but when that money comes through, it turns into a valuable financial resource. The gratuity regulations in India have been updated in 2025, and these modifications will greatly benefit millions of workers.
The Labor Codes took effect on November 21, 2025. Thanks to these new rules, gratuity is now more straightforward, quicker, and easier than ever. Whether you’re earning a salary, working gig jobs, or on a fixed-term contract, these regulations can directly affect your finances.
What is gratuity?
Think of gratuity as a financial “thank you” from your company for your long-term work and loyalty. It’s a lump sum payment you receive when you retire, resign, or complete your service period. With the new labor codes, gratuity is now covered under the Social Security Code. This has simplified the entire process. The goal is to ensure that you have financial security when you change jobs or retire.
Previously, a minimum of five years of continuous service was required to receive gratuity. The 2025 rules have completely changed this aspect. Fixed-term employees are now eligible for gratuity after just one year of service. This will benefit certain workers the most.
Contract and gig workers
Startup employees
How is gratuity calculated?
The formula for calculating gratuity remains the same. Gratuity is calculated as: (Basic + DA) × (15/26) × total years of service. Here, 15/26 refers to 15 days’ salary per year, as a month is considered to have 26 working days.
Some factors in this calculation favor employees. For example, if you work for more than six months in a year, it counts as a full year. However, if you work for less than six months, it doesn’t count as a year. Even for short-term jobs, you receive a pro-rata gratuity, meaning even if you leave a job earlier than planned, you won’t lose out on the benefits.
Gratuity on salary of Rs 25000
If your basic salary is Rs 25,000, the formula for gratuity is simple: (Basic + DA) × (15/26). This means that the company pays you 15 days’ salary for every full year of service, assuming a month has 26 working days. Using this formula, your annual gratuity comes to approximately Rs 14,423.
Calculating gratuity for 5 years is easy. A 1-year gratuity based on a basic salary of Rs 25,000 is approximately Rs 14,423. For 5 years, simply multiply this by 5. The gratuity amount will be approximately Rs 72,115. The same method applies for every 7, 10, or 12 years of service.
New payment deadline and tax benefits
The new payment rule is a significant relief for employees, as employers are now mandated to disburse gratuity payments within 30 days. Previously, delays often stretched to months, but now, if delayed, companies will have to pay 10% annual interest. This means the longer the delay, the more money they receive. This strengthens the position of employees.
Tax benefits are also better than before. For private sector employees, gratuity up to Rs 20 lakh is now completely tax-free, while for central government employees, this limit has been increased to Rs 25 lakh. This simply means that the higher the gratuity, the larger the amount you receive, without any tax deductions.
