Gratuity for central government employees

Gratuity is a lump sum the central government pays an employee on retirement, or the family on death in service, over and above the pension, computed under the Central Civil Services (Pension) Rules, 2021. The retirement gratuity is one-fourth of emoluments, meaning basic pay plus dearness allowance, for each completed six-monthly period of qualifying service, capped at 16.5 times emoluments and at Rs. 25 lakh, and it is fully exempt from income tax for a government employee.

The rules recognise four gratuities, not one, and confusing them is the commonest error a retiring employee makes. The retirement gratuity rewards a career of at least five years. The death gratuity, on a separate slab scale with no minimum-service condition, protects a family when service is cut short. The service gratuity stands in place of a pension where service falls under 10 years. The residuary gratuity tops the benefits up to 12 times emoluments where a retiree dies within five years of retirement.

Two ceilings operate at once, and both are frequently misquoted. The formula stops at 16.5 times emoluments, reached at 33 years of service, and the rupee ceiling of Rs. 25 lakh applies on top of it, so the amount paid is the lower of the two. That rupee figure has been Rs. 25 lakh since 1 January 2024, raised from Rs. 20 lakh by Department of Pension and Pensioners’ Welfare Office Memorandum No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024, and Rs. 20 lakh is still widely quoted from before that date.

This article sets out each of the four gratuities and the rule that carries it, the emoluments base and how qualifying service is counted, who the Rs. 25 lakh ceiling reaches and who it does not, the position of National Pension System and Unified Pension Scheme employees, what a resignation costs, the nomination that decides who receives the money on death, the payment mechanics and the interest payable on delay, the grounds on which gratuity can be withheld, the full income-tax exemption, and how the government arrangement differs from the Payment of Gratuity Act, 1972. Every load-bearing figure is cited to the CCS (Pension) Rules or to the order that fixed it.

The four gratuities compared

The CCS (Pension) Rules, 2021 pay four distinct gratuities, each with its own trigger, formula and rule number. The table below is a salary-calculator.in construction, drawn from Rules 44 and 45 of those Rules and from the ceiling order of 30 May 2024.

The retirement gratuity and the service gratuity are not alternatives. An employee who retires with seven years of qualifying service receives both: the service gratuity because there is no pension below 10 years, and the retirement gratuity because five years is enough to earn it.

Retirement gratuity

Retirement gratuity is one-fourth of emoluments for each completed six-monthly period of qualifying service, subject to a maximum of 16.5 times emoluments, payable to an employee who retires with at least five years of qualifying service. Rule 45(1)(a) of the CCS (Pension) Rules, 2021 grants it, and the emoluments are the basic pay drawn on the date of retirement plus the dearness allowance on that date.

The 16.5 times maximum is reached at exactly 33 years. Thirty-three years is 66 completed six-month periods, and 66 multiplied by one-fourth is 16.5, so service beyond 33 years adds nothing to the multiple. An employee with a shorter career earns proportionately less, and the arithmetic is linear: 20 years is 40 periods and 10 times emoluments, 25 years is 50 periods and 12.5 times.

The retirement gratuity is a distinct benefit, not a part of the pension. It is paid over and above the monthly central government pension and over and above the lump sum from commutation of pension, and none of the three reduces either of the others.

Rs. 25 lakh ceiling

The rupee ceiling on retirement gratuity and death gratuity is Rs. 25 lakh with effect from 1 January 2024, notified by Department of Pension and Pensioners’ Welfare Office Memorandum No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024. It applies over and above the formula maximum of 16.5 times emoluments, so the amount actually paid is the lower of the formula figure and Rs. 25 lakh.

The ceiling moves on dearness allowance, not on a pay commission. Under the government’s decisions on the 7th Central Pay Commission recommendations, it rises by 25% each time the dearness allowance rate rises by 50%. Department of Expenditure Office Memorandum No. 1/1/2024-E-II(B) dated 12 March 2024 raised dearness allowance from 46% to 50% of basic pay with effect from 1 January 2024, and that crossing triggered the enhancement from Rs. 20 lakh to Rs. 25 lakh from the same date. No separate decision was needed; the step-up was pre-authorised.

The path of the ceiling is worth setting out, because each figure is still quoted somewhere. It was Rs. 10 lakh under the 6th Central Pay Commission, doubled to Rs. 20 lakh by the 7th Central Pay Commission from 1 January 2016, and rose to Rs. 25 lakh from 1 January 2024. The next step, to Rs. 31.25 lakh, follows automatically when dearness allowance crosses 100%.

Who the ceiling covers

The Rs. 25 lakh ceiling reaches only employees governed by the CCS (Pension) Rules, 2021 or the CCS (Payment of Gratuity under National Pension System) Rules, 2021. The Office Memorandum of 30 May 2024 names those two sets of rules and no others.

Employees of public sector undertakings, public sector banks, port trusts, the Reserve Bank of India, autonomous bodies, universities, societies and state governments are outside it. Each of those employers is governed by its own service rules, or by the Payment of Gratuity Act, 1972, and an enhancement to the central civil ceiling does not travel to them. The Department of Pension and Pensioners’ Welfare issued a clarification on 24 October 2025 after repeated references and right-to-information applications on this point, which is a measure of how often the ceiling is assumed to be a national figure rather than a central civil services one.

The narrow exception is absorption. An employee of a central government department absorbed in a government-owned corporation under Rule 37 of the CCS (Pension) Rules, 2021 retains the enhanced ceiling on the gratuity earned up to the date of absorption, because that gratuity is computed under the CCS Rules.

Death gratuity

Death gratuity is paid to the family where an employee dies in service, on a slab scale set by length of qualifying service under Rule 45 of the CCS (Pension) Rules, 2021, with no minimum-service condition. It replaces the retirement gratuity, and the same emoluments base and the same Rs. 25 lakh ceiling apply. The slabs are as follows.

The slab design front-loads the benefit deliberately. An employee who dies after 18 months leaves the family six times monthly emoluments, and one who dies after a decade leaves twelve times, sums the retirement-gratuity formula of one-fourth per six-month period would never reach on such short service: three years of service earns 1.5 times emoluments under that formula against six times under the slab. The death gratuity article carries the nomination order, the missing-employee procedure and the payment mechanics in full.

Service gratuity

Service gratuity is a one-time lump sum of half a month’s emoluments for each completed six-monthly period of qualifying service, paid under Rule 44(2) of the CCS (Pension) Rules, 2021 to an employee who retires with less than 10 years of qualifying service and is therefore not eligible for a monthly pension. It works out at roughly one month’s emoluments per year of service.

It stands in place of the pension, so it carries no dearness relief and cannot be commuted. It is separate from and additional to the retirement gratuity, which the same employee also draws once five years of qualifying service are complete. An employee retiring with eight years of service therefore receives two lump sums computed on the same emoluments: a service gratuity of 8 times emoluments, and a retirement gratuity of 4 times.

Residuary gratuity

Residuary gratuity is the top-up paid under Rule 45(3) of the CCS (Pension) Rules, 2021 where a retired employee dies within five years of retirement and the total received by then, across the retirement gratuity, the commuted value of pension and the pension actually drawn, falls short of 12 times the emoluments at retirement. The deficiency is paid to the family as residuary gratuity.

The five-year window and the 12 times floor are the two fixed parameters, and everything else is arithmetic on what was actually received. Where the sums already reach 12 times emoluments, which they usually do for a full career, the residuary gratuity is nil. It bites where the retirement gratuity was small because service was short, and the residuary gratuity article works the computation through. The definitions clause of the Rules, Rule 3(1)(o), lists it expressly as the “residuary gratuity payable under sub-rule (3) of rule 45”, which settles its home in the code.

Emoluments and qualifying service

Emoluments for every gratuity are the basic pay drawn on the date of retirement or death, that is the cell of the pay matrix the employee occupies, plus the dearness allowance on that date, plus non-practising allowance where admissible. Dearness allowance is 60% of basic pay from 1 January 2026, under Department of Expenditure Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026, so emoluments in 2026 are 1.6 times basic pay.

This is the point at which gratuity parts company with pension. Rule 31 of the CCS (Pension) Rules, 2021 defines emoluments for pension as basic pay alone, with non-practising allowance where admissible, and excludes dearness allowance. Gratuity adds dearness allowance to the base, so a dearness allowance revision raises the gratuity directly, and at 60% it raises it by 60%.

Qualifying service for gratuity is counted in completed six-monthly periods, and the maximum counted is 33 years, which is what produces the 16.5 times and 33 times maxima. Service rounds up from three months, not down: Rule 44(7) and Rule 45(4) of the CCS (Pension) Rules, 2021 both treat a fraction of a year equal to three months and above as a completed six-monthly period, so an employee with 29 years and five months is credited with 59 completed six-month periods and not 58. Not every day in service qualifies. Extraordinary leave taken for private reasons does not count unless the sanctioning authority directs that it should, while extraordinary leave on a medical certificate does, and the qualifying service article sets out the full counting rules.

Position under the National Pension System and the Unified Pension Scheme

An employee on the National Pension System or the Unified Pension Scheme receives the retirement gratuity and the death gratuity on the same terms as an Old Pension Scheme employee. The Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, notified as G.S.R. 658(E) on 23 September 2021, extend the same one-fourth per six-month formula, the same 16.5 times and 33 times maxima, the same five-year minimum for the retirement gratuity and the same Rs. 25 lakh ceiling.

The gratuity is paid by the government from the consolidated fund, separately from and in addition to the accumulated pension corpus. It is not funded out of contributions and is not reduced by anything the employee withdraws from the corpus. The gratuity under the NPS Rules, 2021 article covers the rule-by-rule detail, including the events that trigger the entitlement under Rule 22 of those Rules.

Resignation, dismissal and removal

Resignation forfeits the retirement gratuity outright, however long the service. Rule 26(1) of the CCS (Pension) Rules, 2021 provides that resignation from a service or a post, unless it is allowed to be withdrawn in the public interest by the appointing authority, entails forfeiture of past service, and Rule 45(1)(a) grants the retirement gratuity only on retirement. An employee who resigns after 28 years therefore loses exactly what one who resigns after 28 months loses: everything built on qualifying service. Dismissal and removal forfeit past service on the same footing, under Rule 24 of those Rules, and Rule 41(1) forfeits the retirement gratuity with the pension.

Two exits are excepted, and the difference between them and an ordinary resignation is a single administrative step. A technical resignation, tendered to take up another government post applied for through proper channel with prior permission, preserves past service and the gratuity with it. An employee permitted to be absorbed in a government-owned corporation, company or body is deemed to have retired from the date of absorption and draws the retirement gratuity on the qualifying service and emoluments as on that date.

The Department of Pension and Pensioners’ Welfare confirmed this reading for the National Pension System gratuity rules by Office Memorandum No. 2/8/2025-P&PW(F)/11164 dated 24 October 2025, issued in answer to references and right-to-information applications asking whether a resigning subscriber draws gratuity. The answer was no, except on technical resignation and on absorption, which is the same position the CCS (Pension) Rules produce for the Old Pension Scheme cohort. What survives a resignation is narrow: the General Provident Fund balance, half the earned leave at credit subject to a maximum of 150 days under Rule 39(6) of the CCS (Leave) Rules, 1972, and, for a National Pension System subscriber, the corpus on premature-exit terms.

Nomination and the family order

The gratuity is paid on death to the person the employee has nominated, so the nomination filed during service is what decides who receives the money and in what proportion. An employee makes one nomination covering both the retirement gratuity and the death gratuity, ordinarily in favour of one or more members of the family, and it can name several people with a stated share for each and can be revised at any time.

Where no valid nomination is on record, the gratuity is not lost. It is distributed among the members of the family in the shares the CCS (Pension) Rules fix, with the spouse and children ordinarily taking equal shares, and the wider family, including dependent parents and the widow and children of a predeceased son, taking only where no member of the first group survives. That definition of family is wider than the one used for family pension, which is why an entitlement to the death gratuity does not always track an entitlement to the monthly family pension. A current nomination is what keeps the claim from becoming a dispute, and it should be revised after a marriage, a birth or a death in the family.

Payment, provisional gratuity and interest on delay

The gratuity falls due on the date of retirement, and the rules build in two protections against administrative delay. Where the Pension Payment Order is delayed for reasons other than a pending proceeding, Rule 62 of the CCS (Pension) Rules, 2021 allows a provisional payment, and 90% of the gratuity is released with 10% withheld. That 10% is the standing retention pending the No Demand Certificate from the Directorate of Estates, which confirms that any dues on government accommodation have been settled.

Delay costs the department money. Under Rule 65 of the CCS (Pension) Rules, 2021, interest at the rate applicable to the General Provident Fund is payable where the sanction or payment of the gratuity was delayed for administrative reasons, and no interest is payable where the delay was caused by the employee’s own failure to follow the procedure. A gratuity held up by a departmental lapse therefore carries interest for the period it was held; one held up because the retiree did not vacate the accommodation or furnish a document does not. Where the 10% withheld pending the No Demand Certificate turns out to exceed the actual dues, the excess is released with interest at the same rate. The pension case runs through the Bhavishya portal, which timestamps each stage, so the responsibility for a delay is traceable.

Withholding and recovery

Gratuity can be withheld or recovered from in two defined situations, and in no others. Where a departmental or judicial proceeding is pending against an employee at retirement, the whole gratuity is withheld under Rule 8 of the CCS (Pension) Rules, 2021 until the proceeding concludes, because the gratuity is the retirement benefit most readily available to meet a recovery the proceeding may establish. The retiree draws a provisional pension meanwhile.

Government dues are the second case. Rules 67 to 69 of the CCS (Pension) Rules, 2021 allow recovery from the retirement gratuity of a closed list of dues: the licence fee for government accommodation, outstanding advances, overpayments and tax. The list is closed, so a claim outside it cannot be met from the gratuity.

Where the proceeding ends in the employee’s favour the gratuity is released in full, with interest under Rule 65 where the delay was administrative. Only where the proceeding establishes grave misconduct or negligence is a withholding or recovery order made. A proceeding cannot reach conduct more than four years old, and the withholding and recovery from gratuity article sets out the full machinery and the safeguards.

Income-tax exemption

Gratuity received by a central government employee is fully exempt from income tax with no monetary limit. Section 10(10)(i) of the Income-tax Act, 1961 carries the exemption for income up to 31 March 2026, and the corresponding provision of the Income-tax Act, 2025, which came into force on 1 April 2026, carries it forward unchanged for income from that date. The whole gratuity, up to the Rs. 25 lakh the pension rules allow, reaches the retiree or the family untaxed.

Two Rs. 20 lakh and Rs. 25 lakh figures are routinely conflated, and they are different things. Rs. 20 lakh is the cap on the tax exemption for a non-government employee under Section 10(10)(iii). Rs. 25 lakh is the ceiling on the amount payable under the CCS (Pension) Rules, and it is not a tax ceiling at all: whatever a government employee receives under those Rules is exempt in full. The exemption is also not regime-specific. It exempts a receipt rather than allowing a deduction, so it survives the default new regime as it does the old, and a retiree keeps it whichever regime is chosen. The income tax for government employees article covers the retirement-benefit exemptions together.

Comparison with the Payment of Gratuity Act, 1972

A central government employee is not covered by the Payment of Gratuity Act, 1972. The Act governs private-sector and many other employees, and an employee governed by statutory service rules that provide for gratuity falls outside the definition of “employee” in Section 2(e) of the Act. The two schemes differ in every element, so a comparison that assumes a common formula or a common tax rule is wrong on both counts.

The government arrangement is the more generous on both the amount, through the higher ceiling and the dearness-allowance-inclusive base, and the tax, through the unlimited exemption. It is the less generous on one point: a resignation forfeits it entirely, whereas an employee under the Act who resigns after five years of continuous service keeps the statutory gratuity.

Worked examples

Every gratuity is emoluments multiplied by the applicable factor, subject to the Rs. 25 lakh ceiling. Dearness allowance is 60% from 1 January 2026, so emoluments are 1.6 times basic pay in each case below.

• A Level 6 employee retiring after 30 years on basic pay of Rs. 60,000 has emoluments of Rs. 96,000. Thirty years is 60 completed six-month periods, so the retirement gratuity is 60 multiplied by one-fourth of Rs. 96,000, which is Rs. 14.4 lakh, below the ceiling and paid in full.
• A Level 12 employee retiring after 33 years on basic pay of Rs. 1,20,000 has emoluments of Rs. 1,92,000. The formula gives 16.5 times Rs. 1,92,000, or Rs. 31.68 lakh, which exceeds the ceiling, so the gratuity is capped at Rs. 25 lakh and Rs. 6.68 lakh is lost to the ceiling.
• An employee who dies in service after 8 years on emoluments of Rs. 96,000 falls in the 5-to-under-11-years slab, so the family receives a death gratuity of 12 times Rs. 96,000, which is Rs. 11.52 lakh.
• An employee retiring after 8 years on basic pay of Rs. 44,900 has emoluments of Rs. 71,840 and draws two lump sums: a service gratuity of 16 periods multiplied by half of Rs. 71,840, which is Rs. 5,74,720, and a retirement gratuity of 16 periods multiplied by one-fourth of Rs. 71,840, which is Rs. 2,87,360.

Each of these amounts is received tax-free by a government employee. The gratuity calculator works the figure out on a specific pay and length of service.

Bearing on the 8th Central Pay Commission

The gratuity ceiling does not wait on a pay commission. It is tied to dearness allowance, rising by 25% each time dearness allowance rises by 50%, which is how it moved from Rs. 20 lakh to Rs. 25 lakh in 2024 without any commission recommendation, and how it will move to Rs. 31.25 lakh when dearness allowance crosses 100%.

The 8th Central Pay Commission, constituted by Ministry of Finance Resolution F. No. 01-01/2025-E.III(A) dated 3 November 2025, will nonetheless examine the retirement-benefit framework, and a pay revision that resets basic pay raises the emoluments every gratuity is computed on. Until the Commission reports and revised rules are notified, the gratuity continues on the Rule 44 and Rule 45 formulae, with the Rs. 25 lakh ceiling and emoluments including dearness allowance at 60% from 1 January 2026. Any revised ceiling, formula or emoluments base attributed to the 8th Central Pay Commission is a projection.

Related Articles

• Death gratuity
• Service gratuity
• Residuary gratuity
• Gratuity under the NPS Rules, 2021
• Withholding and recovery from gratuity
• Nomination for pension and gratuity
• CCS (Pension) Rules, 2021
• Qualifying service
• Superannuation
• Gratuity calculator
• Central government pension
• Old Pension Scheme
• National Pension System
• Unified Pension Scheme
• Commutation of pension
• Family pension
• Invalid pension
• Disability and invalid pension
• Provisional pension
• Interest on delayed pension
• General Provident Fund
• Leave encashment
• Resignation from government service
• Technical resignation
• Voluntary retirement
• Dearness relief
• Dearness allowance
• 7th Central Pay Commission
• 8th Central Pay Commission
• Central government employees in India
• Pay matrix
• Minimum pay
• Pay fixation
• Income tax for government employees
• Income-tax Act, 2025
• Income tax for pensioners
• Take-home salary of central government employees
• Department of Pension and Pensioners’ Welfare
• Department of Expenditure
• Central Pension Accounting Office
• 7th CPC salary calculator

External references

• Department of Pension and Pensioners’ Welfare
• Gratuity orders and instructions, DoPPW
• CCS (Pension) Rules and pension compilation (pensionersportal.gov.in)
• Central Pension Accounting Office
• Department of Expenditure, Ministry of Finance
• Income Tax Department
• Press Information Bureau release on the enhanced gratuity ceiling

References

1. Central Civil Services (Pension) Rules, 2021, Rule 44 (amount of pension, with the service gratuity at Rule 44(2)), Rule 45 (retirement gratuity and death gratuity, with the residuary gratuity at Rule 45(3)), and Rule 3(1)(o) (definition of gratuity).
2. Department of Pension and Pensioners’ Welfare, Office Memorandum No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024, enhancing the maximum limit of retirement gratuity and death gratuity from Rs. 20 lakh to Rs. 25 lakh with effect from 1 January 2024 under the CCS (Pension) Rules, 2021 and the CCS (Payment of Gratuity under National Pension System) Rules, 2021.
3. Department of Expenditure, Office Memorandum No. 1/1/2024-E-II(B) dated 12 March 2024, raising dearness allowance from 46% to 50% of basic pay with effect from 1 January 2024, the crossing that triggered the ceiling enhancement; and Office Memorandum No. 1/1(i)/2026-E.II(B) dated 22 April 2026, fixing dearness allowance at 60% from 1 January 2026.
4. Department of Pension and Pensioners’ Welfare, Office Memorandum No. 38/37/2016-P&PW(A)(i) dated 4 August 2016, the parent instruction on the revision of pension, gratuity, commutation and family pension provisions following the 7th Central Pay Commission.
5. Central Civil Services (Pension) Rules, 2021, Rule 26(1) (forfeiture of past service on resignation), Rule 31 (emoluments), Rule 37 (absorption), Rule 8 (withholding for grave misconduct), Rule 62 (provisional payment), Rule 65 (interest at the General Provident Fund rate on delayed payment) and Rules 67 to 69 (recovery of government dues).
6. Department of Pension and Pensioners’ Welfare, Office Memorandum No. 2/8/2025-P&PW(F)/11164 dated 24 October 2025, clarifying that no gratuity is payable on an ordinary resignation under the CCS (Payment of Gratuity under National Pension System) Rules, 2021, the exceptions being technical resignation and deemed retirement on absorption.
7. Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, notified as G.S.R. 658(E) dated 23 September 2021, Rule 22 (retirement and death gratuity) and Rule 17 (forfeiture of service on resignation).
8. Income-tax Act, 1961, Section 10(10)(i) (gratuity received by a government employee, exempt without limit) and Section 10(10)(iii) (cap for other employees); Income-tax Act, 2025 (Act No. 30 of 2025), in force from 1 April 2026, carrying the exemption forward.
9. Payment of Gratuity Act, 1972, Sections 2(e) and 4, applicable to employees other than those governed by statutory service rules providing for gratuity.
10. Ministry of Finance, Department of Expenditure, Resolution F. No. 01-01/2025-E.III(A) dated 3 November 2025, constituting the 8th Central Pay Commission.