The Code on Social Security, 2020, which will come into effect on November 21, 2025, aims to enhance social protection for private sector employees in India by broadening the definition of 'wages' used for calculating gratuity. Under the new framework, gratuity will be calculated as 15 days' wages for each completed year of service, using a formula that includes a wider range of remuneration components. However, a significant concern arises due to a disconnect between this expanded definition and the existing income tax provisions, which are based on a narrower wage definition. This could lead to a situation where employees may face higher tax liabilities, as the gratuity amount computed under the new law could exceed the tax-exempt limits established by the Income-tax Act. For example, an employee with a monthly salary structure that includes significant allowances could see a taxable portion of their gratuity, despite the overall amount being within the government’s limit of ₹20 lakh (approximately $24,000 USD). To address this issue, legislative amendments or clarifications from the Central Board of Direct Taxes (CBDT) are essential to ensure that the benefits of the new labour code are not undermined by tax implications.