Gratuity is a statutory retirement benefit for employees who have completed a minimum period of continuous service with an organisation. In 2026, the Employees’ Provident Fund Organisation has proposed changes to the gratuity rules, including an increase in the maximum ceiling for payouts.
This revision aims to provide higher financial protection for employees upon retirement or resignation after long-term service.
New Gratuity Limit in 2026
Under the updated rules, the maximum gratuity amount payable to eligible employees has been raised significantly. Previously capped at ₹20 lakh, the revised limit is designed to reflect inflation, rising salaries, and the cost of living, giving employees better post-retirement financial support.
The increase applies to all eligible employees under the Payment of Gratuity Act and affects both private and public sector workers.
Gratuity Calculation and Eligibility
ComponentPrevious RuleNew 2026 RuleMaximum Gratuity₹20 lakhRevised higher limit (government notification pending exact figure)EligibilityMinimum 5 years continuous serviceSame, with improved payout formulaCalculation BasisLast drawn salary × 15/26 × years of serviceSame, with ceiling adjusted to new limitPayment ModeLump sum on retirement/resignationLump sum, with higher capThe formula for calculating gratuity remains largely unchanged but now allows higher payout due to the increased ceiling.
Who Benefits From the New Gratuity Rules
The increase in gratuity limit benefits employees with long-term service, particularly those in senior roles whose final salaries and service tenure would have otherwise limited their payout under the previous ceiling.
Workers in private companies, public sector units, and certain government-aided organisations covered under the Payment of Gratuity Act are all affected by this change.
Impact on Retirement Planning
The higher gratuity limit provides employees with enhanced post-retirement financial security. It can serve as an additional corpus for medical expenses, family support, or investment purposes.
Financial planners recommend employees factor the updated gratuity limit into retirement planning, especially for long-tenure workers approaching retirement age.
Implementation and Timeline
The government is expected to notify the exact revised limit and implement the change within 2026. Employers are required to update their payroll systems and ensure compliance with the revised gratuity ceiling once the official notification is released.
Employees should confirm their service records and gratuity eligibility to ensure accurate calculation under the new rules.
Conclusion
The gratuity limit increase in 2026 is a welcome development for workers across sectors, offering greater financial security after long-term employment. Eligible employees should monitor official notifications and update records to fully benefit from the revised rules. This adjustment underscores the government’s focus on strengthening post-retirement welfare for the workforce.
Disclaimer: This article is for informational purposes only. Gratuity limits, eligibility conditions, and implementation timelines are subject to official government notifications. Employees should verify updates through authorised EPFO or government sources before making financial decisions.
