Wages for gratuity: the 50% rule

Gratuity is worked on "wages" as defined in section 2(88) of the Code on Social Security, 2020 (read on 13 November 2026). Wages mean basic pay, dearness allowance and retaining allowance. The listed other payments are not wages, but if they add up to more than one-half of all remuneration, the excess is added to wages. PIB describes the effect as raising the wage on which gratuity is worked.

Example

Basic pay ₹20,000 and other payments ₹40,000 make ₹60,000. Half is ₹30,000, so the wages are ₹20,000 plus (₹40,000 − ₹30,000) = ₹30,000. With basic ₹40,000 and other payments ₹20,000 the other payments are under half, so wages stay ₹40,000.

What the section leaves out of wages

• bonus under any law that is not part of the remuneration in the terms of employment;
• the value of house accommodation, light, water, medical attendance and similar amenities;
• the employer’s contribution to a pension or provident fund and interest on it;
• conveyance allowance or travelling concession;
• sums paid for special expenses of the job;
• house rent allowance;
• remuneration under an award, settlement or court order;
• overtime allowance and commission;
• gratuity, retrenchment compensation and other payments at the end of employment.

Common questions

Calculate your gratuity

Sources

• The Code on Social Security, 2020 (Act 36 of 2020), India Code: section 53 (payment of gratuity), section 54 (continuous service) and section 2(88) (wages). Text downloaded from indiacode.nic.in and read on 13 November 2026.
• The Code on Wages, 2019 (Act 29 of 2019, text as on 21 November 2025), India Code: section 17 (time limit for payment of wages) and section 26 (bonus). indiacode.nic.in, read on 13 November 2026.
• Press Information Bureau, "Code on Social Security, 2020: Towards Universal and Inclusive Social Protection" (pib.gov.in): gratuity for fixed-term employees after one year, and the wage definition.

Rules read on 13 November 2026 from the Codes named above. Several amounts are fixed by notifications or rules that are not in the Codes (the gratuity ceiling, the bonus wage limit). Check the current notification before you pay. This site is independent, not connected with any government, and gives information, not legal advice.