Resigning or being terminated does not, by itself, erase your gratuity. If the gratuity provisions apply to your establishment and you meet the relevant service conditions, the benefit can become payable when employment ends. The key exception is statutory forfeiture after specified misconduct. Ordinary dismissal, redundancy, layoff, or poor performance should not be treated as automatic forfeiture.
What changed for gratuity in 2025 and 2026?
India’s four Labour Codes became effective on 21 November 2025. Gratuity is now governed by the Code on Social Security, 2020, while the revised definition of wages applies from the same date. The Social Security (Central) Rules 2026, notified on 8 May 2026, provide the current central-sphere claim forms and procedure. This matters because older articles may still cite the Payment of Gratuity Act, 1972, legacy Forms I, L, and N, or a salary formula based only on basic pay and dearness allowance.
For a current claim, confirm the date on which gratuity became payable, the appropriate government for the establishment and the rules that apply. State procedures may differ from the central rules.
Does resignation qualify you for gratuity?
Yes, resignation is a recognised event on which gratuity may become payable, provided the applicable coverage and qualifying-service conditions are met. For a regular employee, the general requirement is five years of continuous service. Resignation does not convert gratuity into a discretionary employer payment, and the reason for moving to another job is not itself a forfeiture ground. Treat claims that you are eligible after exactly four years and a specified number of months with caution.
The law includes rules for continuous service, days actually worked, and rounding of service for calculation, but eligibility can depend on the establishment’s working pattern and the facts. Get a written calculation rather than relying on an online shortcut.
Does termination qualify you for gratuity?
Termination is also a recognised event for gratuity. A termination letter that does not mention gratuity does not automatically remove a statutory entitlement. Where the employee satisfies the applicable conditions, a redundancy, layoff, role closure, discharge, or performance-related termination does not by itself fall within the Code’s forfeiture provisions.
The practical question is not simply whether the employer used the word “termination.” It is whether gratuity is payable under the code and whether the employer relies on a legally permitted ground for whole or partial forfeiture. Ask for any proposed deduction or forfeiture, the factual basis, and the gratuity calculation in writing.
When can gratuity be forfeited after termination?
The code permits forfeiture only in defined circumstances. If services are terminated for an act, willful omission, or negligence that damages or destroys the employer’s property, gratuity may be forfeited only to the extent of that damage or loss. A larger blanket deduction should not be presented as automatically valid.
Whole or partial forfeiture may be possible where services are terminated for riotous or disorderly conduct, another act of violence, or an act constituting an offence involving moral turpitude committed in the course of employment. These are fact-sensitive legal grounds. A label such as “misconduct,” “insubordination” or “poor performance” does not, without the required facts and process, answer whether forfeiture is lawful.
|
Exit situation
|
General gratuity position
|
What to check
|
|
Voluntary resignation
|
May be payable when coverage and qualifying service are met.
|
Continuous service, applicable wage base and last working date.
|
|
Retrenchment, redundancy or layoff
|
Termination alone does not trigger statutory forfeiture.
|
Eligibility, calculation, and payment notice.
|
|
Performance-related termination
|
Poor performance is not listed as a standalone forfeiture ground.
|
Whether the employer alleges a separate statutory ground.
|
|
Property damage or loss
|
Forfeiture may be limited to the amount of proven damage or loss.
|
Termination basis, evidence, and quantified loss.
|
|
Violence or disorderly conduct
|
Whole or partial forfeiture may be possible.
|
Facts, employment process, and the exact statutory ground.
|
|
Offence involving moral turpitude
|
Whole or partial forfeiture may be possible if committed in the course of employment.
|
Nature of the alleged offence and its connection with employment.
|
Who does not need to complete five years?
The five-year continuous-service condition does not apply where employment ends because of death, disablement, or expiry of fixed-term employment. Under the 2026 central rules, a fixed-term employee claiming gratuity must have completed at least one year of service under the contract. Fixed-term employment should not be confusing with every outsourced, casual, or contractor arrangement.
If an employee dies, gratuity is payable to the nominee or, where there is no nomination, to the legal heirs, subject to the code and applicable procedure. If the recipient is a minor, the code provides for the minor’s share to be deposited with the competent authority for investment as prescribed.
Does the notice period count towards service?
Service generally continues until the actual last working date while the employee remains employed, including a served notice period. Payment in lieu of notice, garden leave arrangement, waiver, or earlier release can affect the recorded end date. Use the date in the employer’s records and seek clarification where appointment, resignation acceptance, and relieving documents differ.
How is gratuity calculated after exit?
For a monthly rated employee, the code generally uses 15 days’ wages for each completed year of service or part exceeding six months. A common expression is: last-drawn monthly wages × 15 ÷ 26 × eligible years of service. Special methods apply to categories such as piece-rate and seasonal employees. “Wages” is a defined statutory term and is not automatically identical to take-home salary, gross salary or cost to company.
The Code on Wages includes specified components, excludes others, and contains an adjustment where excluded items exceed the statutory threshold. Ministry FAQs state that this revised definition applies to gratuity prospectively from 21 November 2025.
When must the employer pay gratuity?
The code requires the employer to determine gratuity when it becomes payable, give written notice to the eligible person and the competent authority, and arrange payment within 30 days from the date it became payable. Delayed payment can attract interest at the notified rate, subject to the statutory exception and approval requirements.
For central rules claim, the applicant uses Form IV. The employer’s Form V response is issued within 15 days after receiving the application and either admits the claim with the amount and payment date or gives reasons for rejection. Keep your application, acknowledgement, and the employer’s calculation separate from the wider full-and-final settlement papers.
What should you do if gratuity is withheld or reduced?
First ask the employer in writing for the eligibility decision, wage base, service period, calculation sheet, payment date, and any forfeiture ground. If the dispute remains, a person governed by the central rules may approach competent authority in Form VI. The ordinary filing period is 180 days from the cause of action, and delay may be condoned for sufficient cause.
- Confirm whether the Central Government or a State Government is the appropriate government for the establishment.
- Submit Form IV or the form prescribed by the applicable state procedure and retain proof of delivery.
- Attach service records, exit documents, wage slips, bank details, and the employer response, where available.
- Identify the dispute precisely: eligibility, continuous service, wage base, calculation, forfeiture, delay, or interest.
- Use Form VI for central rules escalation. For a state-sphere case, follow the notified state route.
What records should you preserve?
Keep records that establish employment, the date, and manner of exit, wages, and the claim trail. Useful documents include the appointment letter, service certificate, resignation and acceptance, termination or retrenchment letter, relieving letter, recent wage slips, bank proof, nomination details, Form IV, delivery acknowledgement, Form V, and written correspondence about deductions or forfeiture.
What mistakes should you avoid?
- Assuming resignation means gratuity is lost or termination means it is automatically forfeited.
- Treating five years as the rule for death, disablement, or fixed-term contract expiry.
- Using gross salary or CTC without checking the statutory definition of wages.
- Relying on legacy central forms or an informal service shortcut.
- Signing a settlement without checking the gratuity calculation and any stated forfeiture ground.
- Waiting for an internal HR process to end without tracking the statutory claim and escalation periods.
Key takeaway
Gratuity usually follows eligibility and service, not the employer’s label for the exit. Resignation and ordinary termination can both lead to payment. Forfeiture is an exception confined to statutory grounds and, for property loss, limited to the loss caused. Use the current form for your jurisdiction, ask for the calculation in writing, and escalate a disputed claim promptly.
September 10, 2026
5 mins read
Table of Contents
ENQUIRE NOW
