Section 53 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 53 is the core of Chapter V. It says when gratuity is payable, after how many years, how it is calculated, who receives it if the employee dies, when it can be forfeited, and what happens for fixed-term, seasonal, piece-rated and journalist employees.
Gratuity is payable on termination after continuous service of not less than five years, on superannuation, retirement or resignation, death or disablement, expiry of a fixed-term contract, or another notified event (s.53(1)). Five years is not needed for death, disablement, fixed-term expiry or a notified event. The rate is fifteen days' wages for every completed year or part in excess of six months, based on the wages last drawn (s.53(2)). The maximum amount is whatever the Central Government notifies (s.53(3)), which the Code does not state.
When gratuity becomes payable
Section 53(1) says gratuity is payable on termination of employment after continuous service of not less than five years, in these cases:
| Clause | Event |
|---|---|
| (a) | Superannuation |
| (b) | Retirement or resignation |
| (c) | Death or disablement due to accident or disease |
| (d) | Termination of the contract period under fixed term employment |
| (e) | Any event notified by the Central Government |
Three provisos adjust the rule:
- For a working journalist (as defined in the Working Journalists Act, 1955), "five years" is deemed three years.
- The five-year requirement does not apply where termination is due to death, disablement, expiration of fixed term employment or a notified event.
- On death, gratuity is paid to the nominee, or if none, to the heirs; a minor's share is deposited with the competent authority notified by the appropriate Government, who invests it for the minor until majority.
Rule 31 of the Central Rules, 2026 says the competent authority invests a minor nominee's or heir's gratuity in a term deposit with the State Bank of India or any nationalised bank. Our article on sections 57 and 58 covers the competent authority.
Explanation 2 defines "disablement" as disablement that incapacitates an employee for the work he was capable of performing before the accident or disease. Explanation 1 excludes from "employee" a person holding a post under the Central or a State Government who is governed by another Act or rules providing gratuity.
For employers, getting this trigger list right is a matter for a periodic payroll compliance audit.
Fixed-term employees
The Code adds fixed-term expiry as a payment event and waives the five-year minimum. Rule 33(1) proviso of the Central Rules says an employee on fixed-term employment shall be eligible if he renders service under the contract for at least one year, and a further period of more than six months but less than one year is rounded off to one additional year. The pro rata rule in s.53(2) (fourth proviso) says gratuity for fixed-term and deceased employees is paid on a pro rata basis. Read these together with our existing post on gratuity for fixed-term contract employees and our article on the definition of fixed-term employment.
How much: s.53(2) to (4)
| Case | Rule |
|---|---|
| General | For every completed year of service or part in excess of six months, fifteen days' wages (or such number of days as the Central Government notifies), based on the rate of wages last drawn |
| Monthly-rated employee | Fifteen days' wages = monthly wages last drawn divided by twenty-six, multiplied by fifteen (Explanation 3) |
| Piece-rated employee | Daily wages = average of total wages received for the three months before termination; overtime wages excluded |
| Seasonal establishment (not employed all year) | Seven days' wages for each season |
| Fixed-term or deceased employee | Pro rata |
| Disabled employee on reduced wages | Wages before disablement are as received before; wages after are the reduced wages (s.53(4)) |
| Ceiling | Not more than the amount the Central Government notifies (s.53(3)); the Code prints no figure |
Section 53(5) protects better terms: nothing in the section affects an employee's right to better terms of gratuity under an award, agreement or contract.
Example
An employee resigns after 8 years and 7 months of continuous service, with last drawn monthly wages of 52,000 rupees (illustrative). Service counts as 9 years, because the part year exceeds six months. Fifteen days' wages = 52,000 ÷ 26 × 15 = 30,000 rupees. Gratuity = 30,000 × 9 = 270,000 rupees, subject to the notified ceiling. A deceased employee with 3 years of service gets gratuity without the five-year rule, pro rata as s.53(2) says. See also gratuity calculation, 15 days per year and, for the "wages" definition that feeds the calculation, our article on wages under section 2.
Forfeiture: s.53(6)
Despite sub-section (1):
- (a) Gratuity of an employee whose services were terminated for an act, wilful omission or negligence causing damage or loss to, or destruction of, employer's property is forfeited to the extent of the damage or loss.
- (b) Gratuity may be wholly or partially forfeited if services were terminated (i) for riotous or disorderly conduct or other act of violence, or (ii) for an act that is an offence involving moral turpitude, committed in the course of employment.
Note the difference: clause (a) is forfeiture "to the extent" of the loss; clause (b) "may" be forfeited in whole or part. Forfeiture follows termination for these acts. See our post on forfeiture of gratuity for the older law discussion, read as background only.
Tax and procedure
For the tax treatment, see our income-tax guide on gratuity taxation under the Income Tax Act, 2025. For nomination and payment procedure, see sections 55 and 56. The Central Rules apply where the Central Government is the appropriate Government; where the State Government is, its own rules apply.
Need help with gratuity compliance?
Gratuity liability builds quietly over years and surfaces at exit. If you would like your policy, provisioning and exit calculations checked against section 53, our payroll compliance audit can help.
Key takeaways
- Gratuity is payable on superannuation, retirement or resignation, death or disablement, fixed-term expiry or a notified event.
- Five years of continuous service is needed, except for death, disablement, fixed-term expiry and notified events; three years for working journalists.
- Formula: 15 days' wages per completed year or part over six months; monthly wages ÷ 26 × 15.
- Seasonal: seven days per season; piece-rated: three-month average; fixed-term and deceased: pro rata.
- The ceiling and any change to the 15 days are notified; the Code states no amount.
Read next
- Sections 50, 51 and 52: Powers, proceedings and appeals from the Employees' Insurance Court
- Section 54: Continuous service
- Gratuity under the new Labour Codes
- Gratuity on death or disability, relaxed five-year rule
Disclaimer: Based on the Code on Social Security, 2020 (as enacted) and, where noted, the Code on Social Security (Central) Rules, 2026 (G.S.R. 344(E), 8 May 2026), as on 30 September 2026. The Code is in force from 21 November 2025; some provisions may be notified later, and State Governments make their own rules for establishments where the State is the appropriate Government. Verify the current position before acting.