Gratuity is usually a one-off payment that employers give to their employees as a sign of gratitude for their service. Most of the time, it is given when an employee retires, resigns after five years of service, or in case of death. The exact figure is determined based on the last drawn salary and the number of years of service.
Why is the Limit Increasing in 2026?
The Indian Government is going to adopt the new labour codes that will be fully operational from April 2026. These regulations are meant to make it easier to understand the whole system of labour laws, remove the grey areas, and consequently bolster the social security. The rise in the limit of gratuities is one of the significant changes that will assure the workers of getting larger compensations that will be in line with the cost of living and inflation going upward.
Benefits for Employees
The hike in gratuity limit implies that workers will get more money at the time of retirement or job exit, thus enabling them to manage their expenses more easily. Moreover, it is a factor that encourages committing to the company for a longer period because the severance increase with time of service. The new codes also have faster settlement rules which will ensure that the employees get their gratuity amount without long waits.
Impact on Employers
The new regulation means that employers will have to deal with financial planning more efficiently. Corporations will be required to segregate bigger amounts for gratuity payments that could become a drawback for payroll budgets. But at the same time, such a measure also results in higher employee satisfaction and lower turnover rates thereby making it the right approach for dealing with the human resource aspect.
Gratuity Limit Comparison
The following table illustrates how the limit for gratuity is likely to change with the new labor legislation:
| Year | Gratuity Limit (₹) | Key Change |
|---|---|---|
| 2025 | 20,00,000 | Existing cap before new codes |
| 2026 | 25,00,000* | Proposed increase under new labour codes |
Final Thought
The rise of gratuity limit in 2026 is a huge move that will greatly enhance rubber support scheme for labour in India. With higher cap, the government is assuring workers that they will get better monetary support when they retire. Even though the employers will have to face and prepare for larger payouts, they will still be positively impacted by the whole situation since their trust and stability in the workplace will be strengthened.