Major Changes in Gratuity Rules: Money After 1 Year, Big Shift in Salary Structure, Know Details
Gratuity Rules 2025: November 2025 has witnessed a historic shift in the Indian labour market. With the implementation of the new Labour Codes, gratuity rules have undergone a massive transformation. This change is being considered the most significant and crucial in decades. It brings immense relief, especially for fixed-term or contract employees. Additionally, changes in the salary structure and gratuity calculation method have created a strong possibility of increased retirement benefits.
Gratuity Eligibility After Just 1 Year
Until now, completing 5 years of continuous service was mandatory to be eligible for gratuity under the Payment of Gratuity Act, 1972. As a result, many contract or project-based workers were deprived of gratuity even after working for 4 years or more. The new Labour Codes have put an end to this long-standing disadvantage. From now on, fixed-term employees will be considered eligible for gratuity after completing just 1 year of work. Employees in sectors like IT, media, or manufacturing, where short-term employment is common, will directly benefit from this.
Changes in Salary Structure and Increased Gratuity
Under the new rules, the definition of ‘Wages’ has been significantly expanded. Previously, gratuity was calculated largely based on basic salary. However, the new labour regulations state that allowances cannot exceed 50% of the total salary. This means the basic salary must be at least 50% of the total remuneration.
Consequently, the base for gratuity calculation will increase substantially. Experts believe this could lead to a 25% to 50% increase in the gratuity amount for employees, thereby significantly boosting their retirement corpus.
Get Instant News Updates!
Join on TelegramTax Exemption Limits and Rules
There are clear guidelines regarding income tax exemptions on gratuity amounts. For private sector employees, the tax-free gratuity limit remains at Rs 20 lakh. However, for central government employees, this limit is effective up to Rs 25 lakh. This rule was proposed earlier and has now been reaffirmed under the new framework.
Who is Eligible for Gratuity?
The scope of gratuity coverage has been greatly expanded under the new rules. The table below simplifies the changes:
| Employee Type | Old Rule | New Rule (2025) |
|---|---|---|
| Permanent Staff | 5 years service mandatory | 5 years service mandatory (Unchanged) |
| Fixed-Term Staff | No gratuity if less than 5 years | Gratuity eligible after 1 year |
| Seasonal Staff | No specific rule | Proportionate gratuity based on tenure |
Corporate Liability and Transparency
Under the new rules, companies must disclose their gratuity liabilities more transparently in their financial statements. They must maintain these accounts as per Ind AS 19 or AS 15. This increases the assurance that employees will receive their dues on time. Although this adds compliance pressure on companies and impacts their balance sheets, it is a positive step in the interest of employees. However, remember that the core gratuity formula (15/26 × last drawn wages × years of service) remains the same.
Note: This report is for informational purposes only. Please consult an expert or your HR department before making any financial decisions or to understand your specific employment terms.
