Gratuity is one of the most important retirement benefits for bank employees. The year 2026 brought renewed attention to gratuity rules because of changes from the new labor code and updates to wage definitions and explanations of eligibility criteria. The bank employees want to understand their payout amounts because they need to know how these changes affect their work. People who want to achieve financial security through their employment needs to understand The Bank of Gratuity Rules 2026 because it helps them plan their retirement and job changes and their financial plans.
What Is Gratuity
Gratuity is a lump-sum amount which employers pay to employees as a reward for their extended period of service. The payment becomes due when an employee reaches retirement or resigns or dies or becomes disabled. The Payment of Gratuity Act of 1972 together with internal service rules establishes the guidelines which govern gratuity payments to bank employees.
Eligibility Rule 2026
The eligibility rule remains mostly unchanged for permanent staff. New labor reforms brought more precise rules about coverage for workers who are not permanent employees.
- Permanent bank employees need 5 years of continuous service
- Fixed-term and contract employees become eligible after 1 year
- In case of death or disability, no minimum service is required
Gratuity Limit 2026
Discussions about the maximum gratuity amount continue to emerge as a crucial topic throughout 2026 .
| Category | Gratuity Limit |
|---|---|
| Private & PSU Banks | ₹20 lakh |
| Central Govt Employees | ₹25 lakh |
| Tax-Free Limit (Banks) | ₹20 lakh |
Calculation Formula
The standard gratuity calculation method remains valid in 2026.
Formula:
Gratuity = (Last drawn Basic + DA × 15 × Years of Service) ÷ 26
The updated labor code wage definition will increase the basepay which results in higher gratuity payments for select employees.
Wage Definition Update
The wage system underwent essential changes because of the 2026 modifications.
- Wages must be at least 50% of total remuneration
- Allowances exceeding this limit may be added to wage calculation
- Higher wage base can increase gratuity payout
The system provides significant advantages to employees whose salaries depend on substantial allowance payments.
Payment Timeline
Banks need to complete gratuity payments within a shorter time frame.
- Employer must calculate gratuity within 30 days
- Delay may attract interest penalty
- Employees can approach controlling authority if delayed
Tax Rule 2026
Tax treatment maintains its beneficial properties for employees.
- Gratuity up to ₹20 lakh is tax-free
- Amount above limit is taxable
- Death gratuity remains fully exempt for nominees