India New Gratuity Rules
Analysis based on 6 articles · First reported Apr 04, 2026 · Last updated Apr 04, 2026
The new labor codes in India are expected to increase gratuity obligations for most Indian companies by 25% to 50%, leading to payroll restructuring and potentially higher statutory costs. This change broadens access to post-employment benefits for millions of formal sector workers, particularly fixed-term and contract employees, which could impact labor costs and financial planning for businesses in India.
India has implemented new labor codes, effective November 21, 2025, significantly changing gratuity rules. Under the new framework, fixed-term and contract employees can now claim gratuity after just one year of continuous service, a reduction from the previous five-year requirement. This change aims to expand post-employment benefits for millions of formal sector workers in India. The India — Ministry of Labor and Employment clarified that these rules are not retrospective and apply only to employees joining on or after the effective date. Additionally, the new codes redefine wages, mandating that they constitute at least 50% of an employee's total cost-to-company (CTC), which is expected to lead to higher gratuity payouts for many employees and increased statutory costs for employers. Permanent employees still require five years of service, with exceptions for death or disability.
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