Employee benefits
What is gratuity?
Gratuity is a lump sum an employer pays an employee who leaves after qualifying service: normally five years, or one year for a fixed-term employee. It is paid on resignation, retirement or termination, and to the nominee on death. It is worked out as 15 days’ wages for each completed year, capped at ₹20 lakh, under the Code on Social Security, 2020.
In short
- Gratuity = a lump sum for long service, paid when you leave.
- Normally after five years; one year for fixed-term employees.
- Amount: 15 days’ wages per year, capped at ₹20 lakh.
- Now governed by the Code on Social Security, 2020.
What is the meaning of gratuity?
A statutory reward for long service, paid by the employer when employment ends. It is not deducted from your salary; it is the employer’s cost. Many employers show it as part of CTC for that reason.
When is gratuity paid?
When employment ends after qualifying service: on resignation, retirement or superannuation, or termination. On death or disablement, it is paid to the employee or their nominee. Our page on eligibility explains the service rules.
Which law governs gratuity now?
The Code on Social Security, 2020, in force from 21 November 2025, which replaced the Payment of Gratuity Act, 1972. The biggest changes are that fixed-term employees qualify after one year, and that the wages used to work out gratuity can no longer be kept artificially low.
How do employers fund gratuity?
From their own funds, or through a gratuity fund or group gratuity policy. Funding it in advance spreads the cost and avoids a large payout landing all at once. Our group gratuity page explains how.
Frequently asked questions
What is gratuity in salary?
A long-service benefit the employer pays when you leave after qualifying service. It is not deducted from your salary.
Who pays gratuity?
The employer, from its own funds or through a gratuity fund or group gratuity policy.
What is the maximum gratuity amount?
₹20 lakh.
What happens when you talk to us
A 20-minute video call with a Growth Advisor. No obligation, and no quote pushed. It opens with a five-minute video from our founder on how the benefits stack works and why Ethika exists; the rest is your questions. You’ll leave with an honest read on your current cover and claims experience, and a straight answer on whether we can genuinely help, even if you never become a client.
20 minutes with a Growth Advisor. No obligation.
A note on this page. Everything here is general information, not legal or tax advice, and nothing is an offer. Gratuity rules are as understood at the review date under the Code on Social Security, 2020, in force from 21 November 2025, and state positions can differ. For advice about your situation, talk to us.