Gratuity under the NPS Rules, 2021

The Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021 are the rules that give a central government employee under the National Pension System the retirement gratuity and the death gratuity, on the same terms as a pension-drawing employee under the CCS (Pension) Rules. They were notified as G.S.R. 658(E) on 23 September 2021, and they cover employees appointed on or after 1 January 2004, who are the employees the National Pension System applies to. Before the entitlement was extended, a National Pension System employee had no statutory gratuity at all, so these rules closed a significant gap between the National Pension System and the old defined-benefit scheme.

The gratuity these rules provide is important because it is paid by the government and is entirely separate from the National Pension System corpus. An employee under the National Pension System builds a corpus from contributions, takes a lump sum from it at exit, and buys an annuity with the rest; the gratuity is none of that. It is a government-paid retirement benefit, computed on length of service and pay, exactly as for an Old Pension Scheme employee, and it is paid over and above whatever the corpus yields. So an employee under the National Pension System receives both the corpus benefits and the government gratuity, and the two do not reduce each other.

This article sets out what the rules are and whom they cover, the gap they filled and the earlier orders that preceded them, the terms of the retirement gratuity and the death gratuity, the emoluments they are computed on, worked examples, how the gratuity sits separately from the corpus, the conditions attached, the position of the Unified Pension Scheme , the tax treatment, and how the ceiling moves. Every load-bearing figure is tied to the CCS (Payment of Gratuity under NPS) Rules, 2021 and the Department of Pension and Pensioners’ Welfare orders.

The gap the rules filled

When the National Pension System replaced the Old Pension Scheme for employees appointed on or after 1 January 2004, it replaced a defined pension and its associated benefits with a contributory corpus. In the early years, this left National Pension System employees without a retirement gratuity or a death gratuity, benefits that an Old Pension Scheme employee received as a matter of course. An employee who died in service or retired under the National Pension System, and their family, had only the corpus, with none of the government-paid gratuity that cushioned an Old Pension Scheme retirement or death.

This was widely seen as an anomaly, because the gratuity is a reward for service and a protection for the family that has little to do with the pension mechanism, and there was no obvious reason a National Pension System employee’s service should earn no gratuity. The rules described here removed the anomaly, extending the retirement and death gratuity to National Pension System employees on the same terms as the gratuity for central government employees under the pension rules, so that the choice of scheme no longer affected the gratuity.

The earlier orders and the 2021 rules

The extension came in stages. The first step, a Department of Pension and Pensioners’ Welfare Office Memorandum dated 5 May 2009, was provisional and narrow: it extended the retirement gratuity and the death gratuity, along with an invalid and family pension, to National Pension System employees only in cases of death or discharge on invalidation in service, not to an ordinary retirement. It was a stop-gap for the hardest cases, a death or a disabling injury, while the wider question was worked out.

The decisive step came with a Department of Pension and Pensioners’ Welfare Office Memorandum dated 26 August 2016, which extended the retirement gratuity and the death gratuity to all National Pension System central government employees on the same terms as the CCS (Pension) Rules, with effect from 1 January 2004, and which was later clarified to be an absolute entitlement rather than a provisional one. The Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021 then put that standing entitlement into formal statutory rules, notified as G.S.R. 658(E) on 23 September 2021. So the 2016 order established the right, and the 2021 rules gave it the form of subordinate legislation under Article 309 of the Constitution.

The retirement gratuity

The retirement gratuity under these rules is identical in its terms to the retirement gratuity for an Old Pension Scheme employee. It is payable to an employee who retires with at least five years of qualifying service, and it is a quarter of a month’s emoluments for each completed six-monthly period of qualifying service, subject to a maximum of 16.5 times emoluments, which is reached at 33 years of service. The amount is capped by a monetary ceiling, which was Rs. 20 lakh and was raised to Rs. 25 lakh with effect from 1 January 2024.

The five-year minimum means that a National Pension System employee who retires with less than five years of service does not receive a retirement gratuity, in the same way an Old Pension Scheme employee would not, though the service gratuity that features in the defined-benefit rules for service below 10 years is a separate matter tied to the pension. The rate, a quarter of a month per six-monthly period, and the 16.5-month maximum are exactly those of the gratuity for central government employees under the CCS (Pension) Rules, so an employee comparing the two schemes finds no difference in the retirement gratuity.

The death gratuity

The death gratuity under these rules mirrors the slabs of the CCS (Pension) Rules, scaling with length of service so that the family of an employee who dies early in service is not short-changed by the short service. It is payable to the nominee or the family on a death in service, on the following scale of emoluments: less than one year of service, two times emoluments; one year to less than five years, six times; five years to less than 11 years, 12 times; 11 years to less than 20 years, 20 times; and 20 years or more, half a month’s emoluments for each completed six-monthly period, up to a maximum of 33 times emoluments. The same Rs. 25 lakh ceiling applies.

These are the identical slabs of the death gratuity under the pension rules, so the family of a National Pension System employee who dies in service receives the same death gratuity as the family of an Old Pension Scheme employee. This matters most for a death early in a career, where the multiple jumps sharply with service, and it is the clearest example of the parity the rules created: on a death in service, the choice of scheme makes no difference to the death gratuity the family draws.

Emoluments and worked examples

The gratuity is computed on emoluments, which for this purpose are the basic pay plus the dearness allowance on the date of retirement or death, the same emoluments base the gratuity uses under the pension rules and, unlike the pension itself, one that includes the dearness allowance. Taking dearness allowance at 60 per cent:

• Retirement after 30 years, basic pay Rs. 80,000. Emoluments are Rs. 80,000 plus Rs. 48,000 dearness allowance, which is Rs. 1,28,000. Thirty years is 60 completed six-monthly periods, so the retirement gratuity is 60 times a quarter of Rs. 1,28,000, which is 60 times Rs. 32,000, or Rs. 19,20,000, within the Rs. 25 lakh ceiling.
• Retirement after 33 years or more, basic pay Rs. 1,00,000. Emoluments are Rs. 1,60,000, and the maximum of 16.5 times is Rs. 26,40,000, which exceeds the ceiling, so the retirement gratuity is capped at Rs. 25 lakh.
• Death in service after eight years, basic pay Rs. 50,000. Emoluments are Rs. 80,000, and eight years falls in the 5-to-11-year slab, so the death gratuity is 12 times Rs. 80,000, which is Rs. 9,60,000, paid to the family.

In each case the gratuity is a one-time lump sum, computed on emoluments that include the dearness allowance, and subject to the Rs. 25 lakh ceiling. The Rule 44 pension calculator and the gratuity articles work through the same arithmetic that applies to a National Pension System gratuity.

Separate from the NPS corpus

The single most important point about the gratuity under these rules is that it is separate from and additional to the National Pension System corpus. The corpus is built from the employee’s and the government’s contributions, invested through the pension funds, and drawn at exit as a lump sum and an annuity, all governed by the NPS exit rules . The gratuity is not part of that; it is a government liability paid from the government’s own account, exactly as an Old Pension Scheme gratuity is, and it does not draw on the corpus at all.

So a National Pension System employee at retirement receives two distinct things: the corpus benefits, the lump-sum withdrawal and the annuity, and the government-paid gratuity under these rules. Neither reduces the other. This is why the extension of the gratuity was such a meaningful improvement for National Pension System employees: it added a government-paid retirement benefit on top of the corpus, rather than rearranging the corpus, and it did so without any additional contribution from the employee.

Conditions and the option for pension-rule benefits

The gratuity under these rules carries the same conditions as the gratuity under the pension rules. The employee must nominate a person to receive the gratuity, in the prescribed form, so that on a death the gratuity reaches the nominee without dispute. The gratuity is subject to the good-conduct and recovery provisions of the pension rules, so it can be withheld or recovered in the cases those rules allow, and any assessed government dues can be adjusted against it, in the same way as for an Old Pension Scheme gratuity.

There is one situation in which the gratuity flows under a different set of rules. A National Pension System employee, or the family, who becomes entitled to benefits under the CCS (Pension) Rules or the extraordinary-pension rules, by exercising the option the implementation rules provide in a death or disability case, receives the gratuity under those rules rather than under these. In the ordinary case, though, the National Pension System employee’s gratuity is governed by the 2021 rules described here, and the terms are the same either way.

How the gratuity is claimed

The gratuity under these rules is sanctioned through the same machinery and on the same timeline as the retirement benefits of a pension-drawing employee. On a normal retirement, the Head of Office prepares the case ahead of the retirement date, determines the qualifying service and the emoluments, and forwards the case for authorisation, so the gratuity is ready to be paid at retirement, subject to the adjustment of any assessed government dues. The full sequence is the one set out in the pension sanction process and timeline , and a National Pension System employee’s gratuity moves through it in the same way as an Old Pension Scheme employee’s.

On a death in service, the Head of Office initiates the death-gratuity case on the family’s application, along with the family pension where one is payable, and the gratuity is paid to the nominee recorded in the prescribed form. Because the nomination governs who receives the death gratuity, a National Pension System employee should keep the nomination current, in the same way an Old Pension Scheme employee would, so that the death gratuity reaches the intended person without dispute. Where the settlement is delayed by an administrative lapse, interest is payable on the gratuity in the same way as on a delayed pension, so the parity with the pension-rule gratuity extends to the process as well as the amount.

The Unified Pension Scheme

The Unified Pension Scheme , which took effect from 1 April 2025 as an option under the National Pension System, also provides the retirement and the death gratuity, and it does so under these same Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, with the same Rs. 25 lakh ceiling. So a subscriber who opts for the Unified Pension Scheme carries the same gratuity entitlement as any other National Pension System employee, computed on the same terms.

The Unified Pension Scheme also provides a separate lump sum on retirement, a payment of one-tenth of the monthly emoluments for each completed six-monthly period of service, which is distinct from the gratuity and additional to it. So a Unified Pension Scheme retiree can receive the assured payout, the separate lump sum, and the gratuity, which is why the Unified Pension Scheme is often described as combining the corpus mechanics of the National Pension System with the defined benefits of the old scheme. The gratuity, in every case, is the same government-paid benefit under the 2021 rules.

Tax treatment

The gratuity under these rules is treated for tax exactly as the gratuity of any central government employee. It is exempt from income tax under Section 10(10) of the Income-tax Act, without the monetary ceiling that limits the exemption for a private-sector employee, so the whole of the retirement or death gratuity is received free of tax. The tax exemption is the same one that applies to an Old Pension Scheme gratuity, so the choice of scheme does not affect the tax position of the gratuity.

The exemption applies to both the retirement gratuity and the death gratuity, so the family of a National Pension System employee who dies in service receives the death gratuity tax-free, and a retiring employee receives the retirement gratuity tax-free. The income tax for pensioners article sets out the taxation of retirement benefits in full; for the gratuity under the NPS rules, the point is that, for a government employee, it is received without deduction of tax.

The ceiling, and the 8th Central Pay Commission

The monetary ceiling on the gratuity is not tied to a pay commission but moves with the dearness allowance. The ceiling was Rs. 20 lakh, and it was raised to Rs. 25 lakh with effect from 1 January 2024, through a Department of Pension and Pensioners’ Welfare order of 30 May 2024, when the dearness allowance reached 50 per cent, on the standing rule that the gratuity ceiling rises by 25 per cent each time the dearness allowance rises by 50 percentage points. This is the same ceiling and the same mechanism that apply to the gratuity under the pension rules, so the two move together.

The 8th Central Pay Commission , constituted in November 2025, will revise the pay on which a gratuity is computed, lifting the rupee amount of a gratuity, and a pay revision will reset the dearness-allowance base from which the ceiling escalates, but the gratuity rate and the rules themselves are standalone and not a matter for a pay commission. No figure for a revised ceiling can be stated as fact on account of the 8th Central Pay Commission until it reports and any revision is notified, and any such figure is a projection until then.

Related Articles

• Gratuity for central government employees
• Death gratuity
• Service gratuity
• National Pension System
• Unified Pension Scheme
• Old Pension Scheme
• NPS vs OPS vs UPS
• NPS exit rules
• NPS tax benefits
• Central government pension
• Central government pension calculation
• Family pension
• Emoluments (for pension)
• Dearness allowance
• Qualifying service
• Income tax for pensioners
• PFRDA
• PPO and life certificate
• CCS (Pension) Rules, 2021
• 8th Central Pay Commission

External references

• Department of Pension and Pensioners’ Welfare
• Pension Fund Regulatory and Development Authority
• CCS (Pension) Rules, 2021 (pensionersportal.gov.in)
• Central Pension Accounting Office
• Income Tax Department

References

1. Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, notified as G.S.R. 658(E) dated 23 September 2021, extending the retirement gratuity and the death gratuity to central government employees under the National Pension System.
2. Department of Pension and Pensioners’ Welfare Office Memorandum No. 38/41/2006-P&PW(A) dated 5 May 2009, provisionally extending the retirement and death gratuity to National Pension System employees in cases of death or discharge on invalidation in service.
3. Department of Pension and Pensioners’ Welfare Office Memorandum No. 7/5/2012-P&PW(F)/B dated 26 August 2016, extending the retirement gratuity and the death gratuity to National Pension System employees on the same terms as the CCS (Pension) Rules with effect from 1 January 2004.
4. Department of Pension and Pensioners’ Welfare Office Memorandum No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024, raising the gratuity ceiling to Rs. 25 lakh with effect from 1 January 2024.
5. CCS (Pension) Rules, 2021, Rule 45 (retirement and death gratuity), whose terms these rules apply to National Pension System employees, and Income-tax Act, 1961, Section 10(10).
6. PFRDA (Operationalisation of Unified Pension Scheme under the National Pension System) Regulations, 2025, with the Unified Pension Scheme effective from 1 April 2025 and gratuity under the 2021 rules.
7. 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.