Service gratuity

Service gratuity is the lump sum paid in place of a pension when qualifying service is under 10 years: half a month's emoluments per six-monthly period.

Updated 18 August 2026

Service gratuity is the one-time lump sum paid to a central government employee who retires with less than 10 years of qualifying service and is therefore not eligible for a monthly pension. Under Rule 44(2) of the CCS (Pension) Rules, 2021, it is half a month’s emoluments for each completed six-monthly period of qualifying service, and it takes the place of the pension. The minimum qualifying service for a monthly pension is 10 years; below that, the service gratuity is the pension system’s provision for a short government career, so that an employee who leaves before the pension threshold is not left without a terminal benefit.

The service gratuity is easy to confuse with the other gratuities, and keeping it distinct is the key to understanding it. It is not the retirement gratuity, which is a separate benefit an employee earns in addition once they have five years of service, and it is not the death gratuity, which is paid to the family on a death in service. The service gratuity is specifically the benefit paid in place of a pension to a living retiree whose service fell short of the 10 years a pension needs, and it is the only one of the three that is an alternative to the pension rather than an addition to it.

This article sets out what service gratuity is, when it applies, the formula and the emoluments it is computed on, how it differs from the retirement gratuity and the pension, worked examples, the interaction where an employee has between five and 10 years of service, the tax treatment, and how it fits the pension schemes. Every load-bearing figure is tied to the CCS (Pension) Rules, 2021.

When service gratuity applies

Service gratuity applies in one situation: an employee retires with less than 10 years of qualifying service. Ten years is the minimum qualifying service for a monthly pension, so an employee who reaches it draws a pension, while one who falls short of it does not, and the service gratuity is what the shorter-service employee receives instead. It applies on an ordinary retirement, and it is the terminal benefit for an employee whose career, for whatever reason, ended before the 10-year mark.

There is no lower bar. The service gratuity is payable for any qualifying service below 10 years, so even a few years earn it, and there is no minimum length of service an employee must reach before a service gratuity is payable at all. This is different from the retirement gratuity, which needs at least five years, and it reflects the purpose of the service gratuity: to give a short-service employee the value of the service they put in, in a lump sum, in place of the pension they did not qualify for.

The formula

The service gratuity is half a month’s emoluments for each completed six-monthly period of qualifying service. Qualifying service is counted in completed six-monthly periods, so a period of service is converted into the number of complete half-years it contains, and the gratuity is that number multiplied by half a month’s emoluments. The formula is:

Service gratuity = half a month’s emoluments × number of completed six-monthly periods of qualifying service.

So the rate works out to one month’s emoluments for each full year of service, delivered as half a month for each half-year. An employee with nine years of qualifying service has 18 completed six-monthly periods, and receives 18 times half a month, which is nine months’ emoluments. Because the service gratuity applies only below 10 years, the largest it can reach is just under 10 months’ emoluments, for an employee who retires just short of the pension threshold.

Emoluments: basic pay plus dearness allowance

The emoluments on which the service gratuity is computed are the basic pay plus the dearness allowance in force on the date of retirement. This is a crucial distinction from the pension. A pension is computed on basic pay alone, with the dearness allowance excluded from emoluments and dearness relief added on top afterwards. The service gratuity, like the retirement and death gratuities, is computed on emoluments that include the dearness allowance, so the dearness allowance is built into the gratuity figure rather than added on top.

This difference matters in the arithmetic, because including the dearness allowance can raise the emoluments substantially at a high dearness-allowance rate. At a dearness allowance of 60%, an employee on a basic pay of Rs. 40,000 has emoluments for the service gratuity of Rs. 40,000 plus Rs. 24,000, which is Rs. 64,000, and the gratuity is computed on that figure, not on the Rs. 40,000 basic. Reading emoluments as basic pay alone, as for a pension, would understate the service gratuity; the correct base is basic pay plus the current dearness allowance. The reckonable emoluments for a gratuity are defined on this basis in the pension rules.

Worked examples

The service gratuity is half a month’s emoluments for each completed six-monthly period, on emoluments of basic pay plus dearness allowance. Taking dearness allowance at 60%:

Eight years of qualifying service, basic pay Rs. 40,000. Emoluments are Rs. 40,000 plus Rs. 24,000 dearness allowance, which is Rs. 64,000. Eight years is 16 completed six-monthly periods, so the service gratuity is 16 times half of Rs. 64,000, which is 16 times Rs. 32,000, or Rs. 5,12,000, paid once. No pension is payable.
Four years of qualifying service, basic pay Rs. 30,000. Emoluments are Rs. 30,000 plus Rs. 18,000, which is Rs. 48,000. Four years is eight completed six-monthly periods, so the service gratuity is eight times Rs. 24,000, which is Rs. 1,92,000. Being below five years, no retirement gratuity is payable in this case.
Seven years of qualifying service, basic pay Rs. 50,000. Emoluments are Rs. 50,000 plus Rs. 30,000, which is Rs. 80,000. Seven years is 14 periods, so the service gratuity is 14 times Rs. 40,000, which is Rs. 5,60,000, and because service is above five years, a retirement gratuity is also payable.

In each case the service gratuity is a single lump sum, not a monthly figure, and it carries no dearness relief because it is not a pension. The amount is the value of the service the employee put in, delivered in one payment.

Service gratuity and the retirement gratuity together

The service gratuity and the retirement gratuity are separate benefits, and an employee can receive both. The retirement gratuity is payable where the qualifying service is at least five years, at a quarter of a month’s emoluments for each completed six-monthly period, subject to a ceiling of Rs. 25 lakh from 1 January 2024. The service gratuity, by contrast, needs no minimum service and is paid at half a month’s emoluments per period. So the two are computed at different rates and on different thresholds, and they do not overlap in function: one is in place of the pension, the other is an additional lump sum.

This produces three bands. An employee with less than five years of service receives only the service gratuity, at half a month per period, because the retirement gratuity’s five-year bar is not met. An employee with between five and 10 years receives both the service gratuity, in place of a pension, and the retirement gratuity, at a quarter of a month per period, because the five-year bar is met but the 10-year pension bar is not. An employee with 10 years or more receives a monthly pension and the retirement gratuity, and no service gratuity, because the pension replaces it. The service gratuity is thus the marker of the sub-10-year career, alone below five years and paired with the retirement gratuity between five and 10.

Counting the qualifying service

Because the service gratuity is measured in completed six-monthly periods, the way qualifying service is counted decides the figure, and it rounds up rather than down. Rule 44(7) of the CCS (Pension) Rules, 2021 provides that in calculating the length of qualifying service a fraction of a year equal to three months and above is treated as a completed six-monthly period and reckoned as qualifying service. An employee retiring with eight years and four months is therefore credited with 17 periods and not 16, and one retiring with eight years and two months with 16.

The qualifying service counted is the service that qualifies under the pension rules, so periods that do not qualify, such as certain kinds of leave without pay or a break in service that has not been condoned, are excluded, exactly as they would be for a pension. What does not apply to the service gratuity is the pro-rata scaling and the old weightage that once featured in pension computation; the service gratuity is simply the completed six-monthly periods multiplied by half a month’s emoluments, with the last broken period rounded on the three-month rule. Getting the count of periods right, and the emoluments base right, is all the service-gratuity calculation requires.

How the service gratuity is sanctioned and paid

The service gratuity is sanctioned through the same machinery as a pension, on the same timeline. The Head of Office prepares the case ahead of retirement, determines the qualifying service and the emoluments, and forwards the case for authorisation, and the gratuity is paid as a one-time lump sum at retirement, subject to the adjustment of any assessed government dues in the same way as a retirement gratuity. The full sequence is set out in the pension sanction process and timeline; the service gratuity differs only in that the case produces a lump sum in place of a monthly pension.

Because the service gratuity is a lump sum and not a monthly pension, there is no Pension Payment Order for a continuing pension in the ordinary sense, though the case is processed and the payment authorised through the same channel. Where the final figure is delayed, the protections that apply to a pension case, the release of an amount so the retiree is not left without their due, apply to the gratuity as well, and interest is payable on a gratuity delayed by an administrative lapse in the same way as on a delayed pension. The service gratuity is therefore not a lesser process, only a lump-sum outcome.

How it differs from a pension

The service gratuity is fundamentally different from a pension, and the differences all follow from its being a one-time lump sum rather than a continuing income. A pension is a monthly payment for life, carries dearness relief that is revised twice a year, is subject to a minimum of Rs. 9,000 a month and a maximum, can be partly commuted, and is re-fixed on a revision of pension at a pay commission. The service gratuity is none of these: it is paid once, carries no dearness relief, is not subject to the Rs. 9,000 monthly floor, cannot be commuted, and is not revised.

The one respect in which the service gratuity is more generous than a pension is the emoluments base, which includes the dearness allowance where the pension’s does not. But the pension is worth far more over a lifetime, because it is a monthly income for life with inflation protection, which is precisely why the 10-year threshold matters: crossing it converts a one-time lump sum into a lifelong pension. An employee close to 10 years of service has a strong reason to reach the threshold, because the difference between a service gratuity and a pension is the difference between a single payment and an income for life.

Family pension on a death with short service

The service gratuity is the retiree’s own benefit, but it is worth noting what happens to the family where a short-service employee dies. A family pension is payable to the family on the death of an employee who had completed at least one year of continuous service, or who was medically fit at appointment, regardless of the 10-year pension threshold, so a family is not denied a family pension merely because the employee had short service. On a death in service, the family also receives the death gratuity, which is scaled by length of service and does not require the 10 years.

So the 10-year threshold that governs the service gratuity is about the retiree’s own pension, not about the family’s benefits. A short-service employee who retires alive receives a service gratuity in place of a pension; the same employee’s family, on a death in service, receives a family pension and a death gratuity on the ordinary rules. The service gratuity and the family-pension provisions answer different questions, one about the employee, the other about the family, and the short-service case is where the distinction is clearest.

Tax treatment

The service gratuity received by a central or state government employee is fully exempt from income tax under Section 10(10) of the Income-tax Act. The gratuity of a government employee is exempt without the monetary ceiling that applies to a private-sector employee, so the whole of the service gratuity is received without deduction of tax. This full exemption applies to the retirement gratuity and the death gratuity of a government employee as well, so a short-service retiree receives both the service gratuity and, where eligible, the retirement gratuity free of tax.

The exemption is a meaningful part of the value of the service gratuity, because it is a lump sum received in a single year that would otherwise attract tax at the marginal rate. The income tax for pensioners article sets out the taxation of retirement benefits in full; the point for the service gratuity is that, for a government employee, it is received tax-free.

Service gratuity across the pension schemes

The service gratuity is a feature of the defined-benefit pension rules, so it applies to an employee under the Old Pension Scheme who retires with less than 10 years of service. An employee under the National Pension System does not draw a service gratuity of this kind, because the National Pension System works through the accumulated corpus rather than a defined pension or gratuity, though the government has extended a retirement gratuity and a death gratuity to National Pension System employees on the pattern of the pension rules, through the gratuity under the NPS Rules, 2021. The Unified Pension Scheme carries the gratuities on the pattern of the defined-benefit rules.

An employee should therefore confirm which scheme governs their service before assuming a service gratuity is payable. Where the defined-benefit rules apply, the service gratuity is the terminal benefit below 10 years as this article describes; under the National Pension System, the short-service outcome runs through the corpus and the extended gratuity provisions rather than through a service gratuity. The distinction matters for employees who joined on or after 1 January 2004.

Service gratuity and the 8th Central Pay Commission

The service gratuity is computed as a proportion of emoluments, so a pay revision raises the emoluments and with them the gratuity, but the rate, half a month’s emoluments per six-monthly period, is set by the pension rules and does not change with a pay commission. The 8th Central Pay Commission, constituted in November 2025, will revise the pay on which the service gratuity is computed, lifting the amount, and may revise the retirement-gratuity ceiling, but the service-gratuity rate itself is a matter for the pension rules.

Until the Commission reports, the service gratuity is half a month’s emoluments, basic pay plus dearness allowance, for each completed six-monthly period of qualifying service below 10 years, tax-free for a government employee. Any revised rate or ceiling attributed to the 8th Central Pay Commission is a projection until the Commission reports and revised rules are notified.

Frequently Asked Questions (FAQs)

What is service gratuity?

Service gratuity is a one-time lump sum paid to a central government employee who retires with less than 10 years of qualifying service and is therefore not eligible for a monthly pension. Under Rule 44(2) of the CCS (Pension) Rules, 2021, it is half a month’s emoluments for each completed six-monthly period of qualifying service. It takes the place of the pension, so an employee who does not reach the 10-year pension threshold is not left without a terminal benefit.

How is service gratuity calculated?

It is half a month’s emoluments for each completed six-monthly period of qualifying service, where emoluments are the basic pay plus the dearness allowance on the date of retirement. So an employee who retires after eight years, which is 16 completed six-monthly periods, receives 16 times half a month, which is eight months’ emoluments, as a one-time lump sum.

Is service gratuity the same as retirement gratuity?

No. Service gratuity is paid in place of a pension where qualifying service is under 10 years, at half a month’s emoluments per six-monthly period. Retirement gratuity is a separate benefit, payable where qualifying service is at least 5 years, at a quarter of a month’s emoluments per six-monthly period, subject to a ceiling. An employee with between 5 and 10 years of service receives both.

Does service gratuity carry dearness relief?

No. Service gratuity is a one-time lump sum, not a monthly pension, so it carries no dearness relief and is not revised at a pay commission. Its own computation, however, uses emoluments that include the dearness allowance in force on the date of retirement, unlike the pension, which is computed on basic pay alone.

Is service gratuity taxable?

For a central or state government employee, the gratuity received on retirement, including the service gratuity, is fully exempt from income tax under Section 10(10) of the Income-tax Act. So the service gratuity is received without deduction of tax.

What is the minimum service for a service gratuity?

There is no minimum-service bar for a service gratuity; it is payable for any qualifying service below the 10-year pension threshold. It is the benefit for a short government career, so even a few years of service earn a service gratuity, computed at half a month’s emoluments for each completed six-monthly period.

External references

References

Central Civil Services (Pension) Rules, 2021, Rule 44(2), service gratuity of half a month’s emoluments for each completed six-monthly period of qualifying service where qualifying service is less than 10 years and no pension is payable.
Central Civil Services (Pension) Rules, 2021, Rule 44(1) (minimum 10 years of qualifying service for a pension) and Rule 45 (retirement gratuity at a quarter of a month’s emoluments per six-monthly period for service of at least 5 years, ceiling Rs. 25 lakh from 1 January 2024).
Central Civil Services (Pension) Rules, 2021, definition of emoluments for gratuity as basic pay plus dearness allowance on the date of retirement.
Income-tax Act, 1961, Section 10(10), exemption of the gratuity of a central or state government employee.
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.