Who is eligible for gratuity after 1 year under new labour code?
Under the traditional Payment of Gratuity Act, 1972, most employees require five years of continuous service to become eligible. However, the Social Security Code 2020 (part of the New Labour Code) introduces a significant change specifically for fixed-term employees. If you are hired on a fixed-term contract—meaning your employment has a predetermined end date—you are now eligible for gratuity proportionately if you complete just one year of service. This benefit is designed to protect short-term contractual workers who were previously excluded. It is crucial to check your appointment letter to confirm if you are classified as a 'fixed-term employee' to claim this specific one-year benefit successfully.
How is gratuity calculated for fixed-term employees?
The calculation formula for fixed-term employees remains the same as for permanent employees: (15 days' wages) × (number of years of service). Here, '15 days' wages' is calculated as (Last Drawn Basic Salary + Dearness Allowance) ÷ 26 × 15. The 'years of service' component for fixed-term staff is calculated proportionately. So, if you worked for exactly 1.5 years, you would multiply the 15-day wage figure by 1.5. This ensures that even short-duration expertise is financially recognized. Our calculator automates this math, allowing you to simply enter your basic pay and tenure to see your estimated legal entitlement under the new 2026 framework.
What if my employer refuses to pay gratuity?
Gratuity is a statutory right, not a discretionary bonus. If you meet the eligibility criteria (1 year for fixed-term or 5 years for permanent) and your employer refuses to pay, you have several legal options. First, send a formal written notice to the HR department citing the Payment of Gratuity Act or the Social Security Code. If they still don't comply, you can file an application with the 'Controlling Authority' (usually the Assistant Labour Commissioner) in your region. Employers who default on gratuity payments can face imprisonment of up to two years and heavy fines. Always keep records of your service tenure and salary slips as evidence for your claim.
Is gratuity taxable in India in 2026?
In 2026, the taxability of gratuity depends on your employment sector. For government employees, the entire gratuity amount is typically tax-exempt. For private-sector employees covered under the Gratuity Act, the exemption limit is currently ₹20 lakhs over a lifetime. Any amount received above this threshold is added to your income and taxed at your applicable slab rate. If you are not covered under the Gratuity Act, the tax-free portion is calculated using a different formula involving half a month's average salary for each year of service. We recommend consulting a qualified CA at labourcodecalc@gmail.com or another professional to understand your specific tax liability based on the latest budget updates.
Can I claim gratuity if I resign before completing the contract?
For fixed-term employees, eligibility for the 'one-year rule' generally requires you to complete at least one continuous year of service as specified in your contract. If you resign before completing one year, you typically lose your eligibility for gratuity. However, if you have completed more than one year but resign before the full contract term ends, you are still entitled to receive gratuity for the period you actually worked. For permanent employees, the five-year rule still applies; resigning at the four-year mark usually disqualifies you. Continuous service is the key—any unauthorized breaks in service could potentially reset your eligibility clock in the eyes of the law.