Section 4 of the Payment of Gratuity Act — Now Section 53, Code on Social Security 2020

Work out the gratuity due

Enter your own figures in the calculator on this page: Gratuity calculator, under Code on Social Security, 2020, s.53 (formerly Payment of Gratuity Act, 1972, s.4).

• Gratuity calculator, with the method and worked examples

• Gratuity calculator, with the method and worked examples

What the section does

• Section 4 of the Payment of Gratuity Act, 1972 no longer applies. Section 164 of the Code on Social Security, 2020 repealed the Act, and the Code came into force on 21 November 2025; gratuity is now governed by section 53.
• Gratuity is payable on termination after five years of continuous service — on superannuation, retirement, resignation, death or disablement, or the end of a fixed-term contract.
• The five-year condition does not apply where employment ends by death or disablement, or where a fixed-term contract expires. The Labour Ministry's FAQ of 16 March 2026 puts the fixed-term minimum at one year, and s.53(2) says fixed-term employees are paid pro rata.
• The amount is fifteen days of wages for every completed year of service, on the wages last drawn. For a monthly-rated employee, Explanation 3 divides the monthly wage by twenty-six and multiplies by fifteen. A part-year in excess of six months counts as a full year.
• Wages follow s.2(88): basic pay, dearness allowance and retaining allowance, but if the excluded allowances exceed half of total remuneration, the excess is added back. This is the change that raises gratuity on allowance-heavy packages.
• The amount is capped at the figure the Central Government notifies under s.53(3), which the Labour Ministry confirmed in December 2025 is ₹20,00,000. It must be paid within 30 days of falling due (s.56(3)), with simple interest for delay (s.56(4)).

Gratuity: Payment of Gratuity Act s.4 vs Code on Social Security s.53

Formula

(15 × last drawn wages × years) ÷ 26. Wages means basic plus dearness allowance, lifted to half of total pay if allowances exceed that. Capped at ₹20,00,000.

Where people go wrong

• Using gross salary. The computation runs on wages — basic plus dearness allowance — and using gross inflates the figure substantially.
• Ignoring the 50% rule. If HRA, conveyance and other allowances together exceed half of total pay, basic plus DA alone understates wages, and the gratuity with it.
• Treating fixed-term exits as outside gratuity. A fixed-term employee who completes one year under the contract is now entitled, pro rata.
• Rounding every part-year up. Only a part-year of more than six months counts.
• Missing the payment deadline. Section 56(3) requires payment within 30 days, and s.56(4) adds interest for delay.

Common questions

Is section 4 of the Payment of Gratuity Act still in force?

No. The Code on Social Security, 2020 repealed the Payment of Gratuity Act, and its gratuity chapter came into force on 21 November 2025. The equivalent provision is now section 53 of the Code. The Labour Ministry's FAQ says gratuity falling due on or after that date is paid under the Code, on the wages last drawn at exit.

How is gratuity calculated under section 53?

Fifteen days of wages for every completed year of service on a twenty-six day month: (15 × last drawn wages × years of service) ÷ 26. Wages means basic plus dearness allowance and retaining allowance, raised to half of total pay if allowances exceed that, and a part-year of more than six months counts as a full year.

What is the maximum gratuity payable?

₹20,00,000. Section 53(3) leaves the ceiling to notification, and the Labour Ministry confirmed in December 2025 that the current figure is ₹20 lakh. An employer may pay more as a contractual benefit.

Is five years of service always required?

No. It does not apply where employment ends by death or disablement, or where a fixed-term contract expires. A fixed-term employee qualifies after one year of service under the contract and is paid pro rata.

Act on this

• Section 53 of the Code on Social Security — the text in full
• Gratuity calculator
• Full and final settlement: what you owe, and when
• Full and final settlement statement

• Section 53 of the Code on Social Security — the text in full
• Gratuity calculator
• Full and final settlement: what you owe, and when
• Full and final settlement statement

Other provisions

• Section 53, Code on Social Security
• Section 47, Central Goods and Services Tax Act
• Section 92, Companies Act
• Section 454, Companies Act
• Section 164, Companies Act
• Section 96, Companies Act

• Section 53, Code on Social Security
• Section 47, Central Goods and Services Tax Act
• Section 92, Companies Act
• Section 454, Companies Act
• Section 164, Companies Act
• Section 96, Companies Act

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Maintains the law explainers, calculators, templates and blog posts on vidhisar.in: checks them against the statute text and updates them when the law changes. Errors and changes in the law can be reported to legal@vidhisar.in.

• Official text: The Code on Social Security, 2020 (India Code)
• Report an error or a change in the law: legal@vidhisar.in

About this summary

A plain-English summary of what this provision requires, not a reproduction of it and not legal advice. Read alongside the bare Act, and take advice on anything turning on your own facts.