Archive · 28 Nov 2025
Code on Social Security: Higher Gratuity, Lower Take-Home Pay
The new Code on Social Security in India will change how gratuity is calculated for employees.
Gratuity will now be based on 50% of total pay, including basic salary and allowances.
This means employees will get more gratuity when they leave, but their monthly take-home pay might be less.
Employers will need to adjust salary structures to follow the new rules.
Fixed-term employees will be eligible for gratuity after just one year, instead of five.
However, regular employees still need to complete five years of service.
The changes might also affect how much tax employees have to pay, as more of their salary will be taxable.
Gratuity will be calculated on 50% of total remuneration, including basic pay and allowances.
Employees will receive higher gratuity payouts but may have lower take-home pay due to increased deductions.
The eligibility period for gratuity has been reduced to one year for fixed-term employees.
Employers will need to restructure salaries to comply with the new wage definition.
The changes may result in higher income tax liability for employees due to increased taxable income.
- Who
- Employees and employers in India
- What
- Changes in gratuity calculation and salary structure due to the Code on Social Security
- When
- Upon implementation of the Code on Social Security
- Where
- India
- Why
- To comply with the new labour code and broader definition of wages
- Gratuity Calculation
- 50% of total remuneration (basic pay, dearness allowances, retaining allowances)
- Gratuity Deduction
- 4.83% of employees’ wages every month
- Eligibility for Gratuity
- Reduced to 1 year for fixed-term employees, 5 years for regular employees
- Salary Restructure
- Basic and dearness allowance components to be increased to 50% of total compensation
- Tax Exemption
- Gratuity amount up to Rs 20 lakh is exempt from tax
