Glossary
Gratuity
A lump-sum statutory benefit paid on separation after 5 years' continuous service (1 year pro-rata for fixed-term employees), now computed on deemed wages under Social Security Code §53.
Gratuity remains a 5-year-vesting benefit for permanent employees. The Social Security Code extends pro-rata gratuity to fixed-term employees after just one year — no five-year cliff for FTE contracts.
Gratuity is calculated “on wages,” so the 50% deemed-wages floor applies. Even a CTC with a thin basic pay component produces a materially larger gratuity accrual than under the old regime. The MoLE has confirmed this applies from 21 Nov 2025 on a prospective, last-drawn-wages basis.
Why it matters now: under the Income-tax Act 2025, gratuity exemption sits at §19 Sl. 5–6, capped at ₹20 lakh — unchanged in amount, but now paid on a larger base.