Most people think gratuity is something you worry about only on your last working day. Big mistake. In 2026, gratuity rules in India have quietly become more generous, especially if you’re on a fixed-term or contract job. And yes, this change could put real money in your pocket.
Here’s a simple question. What if you didn’t have to wait five long years to earn gratuity? For many workers today, that’s no longer a “what if.” It’s already happening.
The new labour codes, rolled out in late 2025, didn’t scrap the old Payment of Gratuity Act. Instead, they reshaped who benefits and how quickly.
What Stayed the Same Under Gratuity Rules in India 2026
Let’s clear the basics first.
The gratuity limit is still Rs 20 lakh, and it remains tax-free for most private-sector employees. The formula hasn’t changed either. Gratuity is calculated as 15 days’ salary for every completed year of service, based on your last drawn basic pay plus Dearness Allowance.
Employers must still pay gratuity within 30 days of separation. Miss that deadline, and they owe interest.
So far, so familiar.
The Big Shift for Fixed-Term and Contract Employees
Here’s where things get interesting.
Fixed-term employees now qualify for gratuity after just one year of continuous service. Earlier, they had to meet the same five-year rule as permanent staff. That change alone has transformed exit benefits for project-based professionals, consultants, and contract hires.
Think about it this way. If you’re hired for a two-year project, you no longer walk away empty-handed. You earn gratuity, just like a permanent employee.
Contract workers hired directly by establishments also enjoy similar protection, which nudges companies toward more formal and transparent hiring.
Permanent Employees: No Change in Eligibility, But a Catch
Permanent employees still need five years of continuous service to claim gratuity. Many courts interpret this as four years and 240 days, but the safer assumption remains five full years.
The formula stays the same. What’s changed is the salary base.
How the New Wage Definition Impacts Your Gratuity
Under the Social Security Code, “wages” now have a broader meaning. Allowances and exclusions cannot exceed 50 percent of total CTC.
Why does this matter?
Because gratuity is calculated on wages. If your basic salary was kept artificially low earlier, chances are it’s higher now. That means bigger gratuity payouts, even if your tenure hasn’t changed.
Employers have had to restructure payrolls in 2026 to stay compliant.
Gratuity Rules at a Glance
| Aspect | Permanent Employees | Fixed-Term / Contract Workers |
|---|---|---|
| Minimum Service | 5 years | 1 year |
| Calculation Formula | 15/26 × last salary × years | Same |
| Maximum Limit | Rs 20 lakh | Rs 20 lakh |
| Tax Exemption | Up to Rs 20 lakh | Up to Rs 20 lakh |
| Payment Timeline | Within 30 days | Within 30 days |
| Coverage | Establishments with 10+ employees | Same |
Why These Gratuity Changes Matter in 2026
India’s workforce is changing fast. Short-term roles, gig-style contracts, and fixed projects are now normal. These gratuity rules bring long-overdue financial dignity to that reality.
If you’re employed today, check your offer letter. Look at how wages are structured. And talk to HR. A small detail there could mean lakhs later.
Also read: January 2026 DA Hike: Dearness Allowance Rises to 60% for Central Government Employees