Service gratuity

Service gratuity is the lump sum that Rule 44(2) of the Central Civil Services (Pension) Rules, 2021 pays to a central government servant who retires with less than 10 years of qualifying service and so falls short of the monthly pension in Rule 44(1). It is half a month’s emoluments for every completed six-monthly period of qualifying service, where emoluments are basic pay plus the dearness allowance admissible on the date of retirement. It is paid once, in place of the pension, never in addition to it.

Four other sub-rules of Rule 44 decide the actual figure. Rule 44(3) adds the dearness allowance and, where pay fell in the last 10 months, substitutes average emoluments. Rule 44(7) rounds a fraction of three months or more up to a full six-monthly period. Rule 44(8) treats nine years and nine months as 10 years, which converts the service gratuity into a pension. Rule 44(9) rounds the result up to the next whole rupee.

The service gratuity belongs to the defined-benefit CCS (Pension) Rules, 2021, notified by the Department of Pension and Pensioners’ Welfare as G.S.R. 868(E) on 20 December 2021. Rule 2 applies them to servants appointed on or before 31 December 2003 and, through its Explanation, to four groups appointed later, including temporary-status casual labourers regularised after 2003. An employee under the National Pension System or the Unified Pension Scheme has no service gratuity of its own. For the servants the 2021 Rules do cover, it is the terminal benefit wherever qualifying service ends below 10 years: through non-qualifying periods, a compulsory retirement, an invalidation that misses the Rule 39(9) conditions, or a late regularisation.

Three other lump sums carry the word gratuity. The retirement gratuity under Rule 45(1)(a) is paid on top of either a pension or a service gratuity once service reaches five years. The death gratuity under Rule 45(1)(b) goes to the family on a death in service. The residuary gratuity under Rule 45(3) tops up the family’s receipts when a retired servant dies within five years. Only the service gratuity substitutes for the pension.

Rule 44(2): the text and who it covers

Rule 44(2) of the CCS (Pension) Rules, 2021 reads in full:

A Government servant, who retires under any of the rules referred to in sub-rule (1) but has not become eligible for grant of pension in accordance with that sub-rule, shall be eligible for grant of a service gratuity. The amount of service gratuity in such cases shall be calculated at the rate of half month’s emoluments for every completed six monthly period of qualifying service.

The rules referred to in sub-rule (1) are Rules 33 to 39. Each is a class of pension, and each class carries a service gratuity variant for the servant whose qualifying service is under 10 years. Rule 33 grants a “superannuation pension or superannuation service gratuity”, and Rule 34 a “retiring pension or retiring service gratuity”, so the variant is written into the opening words of each rule.

Rule 34(1)(a) is how a voluntary retirement under FR 56 reaches Rule 44(2). Voluntary retirement under Rule 43 needs 20 years of qualifying service and the Rule 42 route 30, so neither ends below 10 years; the short-service cases under Rule 34 arise under FR 56 and under the Special Voluntary Retirement Scheme in DoPT OM No. 25013/6/2001-Estt.(A) dated 28 February 2002, which Rule 34(2) tops up with an ex-gratia amount. An absorbed servant under Rules 35 to 38 receives the Rule 44(2) amount for the central service, with the permanent absorption rules deciding how the liability is settled.

The formula and a worked computation

Service gratuity under Rule 44(2) of the CCS (Pension) Rules, 2021 equals half a month’s emoluments multiplied by the number of completed six-monthly periods of qualifying service:

Service gratuity = (emoluments ÷ 2) × completed six-monthly periods of qualifying service

That is one month’s emoluments per year of service, paid at the end. For a servant on basic pay of Rs. 39,900, a Level 6 cell of the pay matrix, who retires after eight years and four months with dearness allowance at 60%, the rate in force from 1 January 2026 under Department of Expenditure OM No. 1/1(i)/2026-E.II(B) dated 22 April 2026:

1. Emoluments are Rs. 39,900 plus Rs. 23,940 of dearness allowance, or Rs. 63,840.
2. Eight years is 16 six-monthly periods; the four remaining months are three months or more, so Rule 44(7) adds one more. The count is 17.
3. Half a month’s emoluments is Rs. 31,920.
4. The service gratuity is 17 × Rs. 31,920 = Rs. 5,42,640.

The same servant, having passed five years, also receives a retirement gratuity under Rule 45(1)(a) of one-fourth of emoluments per period: 17 × Rs. 15,960 = Rs. 2,71,320. The two lump sums total Rs. 8,13,960, and no monthly pension follows.

Rule 44(9) requires the final service gratuity to be expressed in whole rupees, with any fraction rounded up to the next higher rupee. Department of Pension and Pensioners’ Welfare OM No. 7(12)/85-P&PW dated 30 September 1986, printed below Rule 49 of the 1972 Pension Rules, had already applied that rounding to the service gratuity.

Emoluments: basic pay plus dearness allowance

The emoluments for a service gratuity start from Rule 31(1) of the CCS (Pension) Rules, 2021: basic pay as defined in FR 9(21)(a)(i) that the servant was receiving immediately before retirement, plus any non-practising allowance granted to a medical officer. Rule 44(3) then adds the dearness allowance admissible on the date of retirement. For a monthly pension under Rule 44(1), emoluments stop at basic pay, and dearness allowance returns only afterwards as dearness relief.

Rule 44(3) reads:

In case the emoluments of a Government servant have been reduced during the last ten months of his service, average emoluments as referred to in rule 32 shall be treated as emoluments for the purpose of sub-rule (2) and the dearness allowance admissible on the date of retirement shall also be treated as part of emoluments.

The sentence joins two separate rules. The average-emoluments limb applies only where pay was reduced in the last 10 months, for example by a reduction to a lower stage as a major penalty. The dearness allowance limb applies to every service gratuity: its 1972 predecessor, Rule 49(1A) of the CCS (Pension) Rules, 1972, inserted by notification G.S.R. 928(E) dated 21 December 2012 (F. No. 38/80/08-P&PW), stood alone and provided that the “dearness allowance admissible on the date of retirement shall also be treated as emoluments for the purpose of sub-rule (1)”.

The dearness allowance limb is the largest single input after basic pay. At 60% of basic pay, a servant on Rs. 39,900 has service-gratuity emoluments of Rs. 63,840, and a calculation on basic pay alone would understate the service gratuity by 37.5%. Average emoluments under Rule 32 are the pay drawn over the last 10 months of service, with periods of extraordinary leave or non-counting suspension replaced by an equal earlier period under Rule 32(3).

Counting six-monthly periods under Rule 44(7) and Rule 44(8)

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 shall be treated as a completed six monthly period and reckoned as qualifying service”. A Government of India decision below the 1972 Rule 49 put it the same way, in the OM of 30 September 1986: three months and above but less than six months is treated as one half-year. A residue of one or two months is dropped.

Rule 44(8) then removes the last few months below the pension threshold altogether. A servant with qualifying service of nine years and nine months or more but less than 10 years is treated as having 10 years and draws a pension under Rule 44(1).

The table, a salary-calculator.in construction from Rules 44(2), 44(7) and 44(8), fixes the ceiling of the benefit. The largest possible service gratuity is 9.5 months’ emoluments, reached at nine years and three months and held until the day before nine years and nine months. Rule 44 sets no rupee ceiling. The Rule 45 ceiling, Rs. 20 lakh in the gazetted text and Rs. 25 lakh from 1 January 2024 under the 30 May 2024 OM, applies only to the retirement and death gratuities “payable under this rule”.

The service counted is qualifying service as Chapter III of the Rules defines it. Extraordinary leave that does not count, suspension not treated as duty under Rule 23, and an uncondoned break in service all shorten the count, exactly as they would shorten a pension. Under Rule 43(1), the three-month fraction rule does not apply when testing eligibility for voluntary retirement; Rule 44(2) carries no such exclusion.

Service gratuity and the retirement gratuity together

The retirement gratuity is paid in addition to the service gratuity once qualifying service reaches five years. Rule 45(1)(a) of the CCS (Pension) Rules, 2021 grants it to a servant who has completed five years’ qualifying service and “has become eligible for service gratuity or pension under Rule 44”, at one-fourth of emoluments for each completed six-monthly period, up to 16½ times emoluments. Rule 45(5) treats four years and nine months as five years.

Both lump sums use emoluments of basic pay plus dearness allowance. Between four years nine months and nine years nine months, the two together pay three-quarters of a month’s emoluments per six-monthly period. The Rs. 25 lakh retirement-gratuity ceiling, raised from Rs. 20 lakh with effect from 1 January 2024 by Department of Pension and Pensioners’ Welfare OM No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024, does not bind below 10 years of service: 19 periods at one-fourth is 4.75 months’ emoluments, which at the Level 18 pay of Rs. 2,50,000 and dearness allowance of 60% is Rs. 19,00,000. The ceiling would bite only with dearness allowance above about 110%.

The cliff at nine years and nine months

A servant on basic pay of Rs. 56,100, the entry cell of Level 10, with dearness allowance at 60%, has emoluments for gratuity of Rs. 89,760. Compare two retirement dates one month apart:

• Nine years and eight months. 19 periods. Service gratuity 19 × Rs. 44,880 = Rs. 8,52,720. Retirement gratuity 19 × Rs. 22,440 = Rs. 4,26,360. No pension.
• Nine years and nine months. Rule 44(8) treats the service as 10 years. Pension of 50% of Rs. 56,100, or Rs. 28,050 a month before dearness relief. Retirement gratuity on 20 periods under Rule 45(4), 20 × Rs. 22,440 = Rs. 4,48,800. No service gratuity.

Taking the pension gives up Rs. 8,30,280 of lump sum, the Rs. 8,52,720 service gratuity less the Rs. 22,440 gain in retirement gratuity, and replaces it with Rs. 3,36,600 of basic pension a year, before dearness relief, for life. It also opens commutation of pension and, on death, a family pension under Rule 50(1)(iii).

Retirement on invalidation, compulsory retirement and dismissal

Invalid pension below 10 years

Rule 39(9) of the CCS (Pension) Rules, 2021 grants an invalid pension of 50% of emoluments or average emoluments to a servant retiring on invalidation before 10 years, provided the servant was examined by the appropriate medical authority either before or after appointment and declared fit for government service, and fulfils the other conditions of Rule 39. The proviso to Rule 44(1) disapplies the 10-year minimum in that case. A servant who retires on invalidation without meeting Rule 39(9) receives the Rule 44(2) service gratuity.

Where the invalidation is attributable to government service, the Central Civil Services (Extraordinary Pension) Rules, 2023, G.S.R. 63(E) dated 30 January 2023, take over. Rule 10(2)(ii) of those Rules removes the minimum-service condition for the disability pension and provides that “no service gratuity shall be admissible in such cases”.

Compulsory retirement as a penalty

Rule 40(1) allows the authority that imposes compulsory retirement to grant pension, gratuity or both at not less than two-thirds and not more than the full superannuation amount. Below 10 years, Rule 44(4)(b) makes the reference figure the superannuation service gratuity under Rule 44(2). Where the quantum is not ordered with the penalty, Rule 40(3) requires a provisional gratuity at two-thirds to be sanctioned immediately, and Rule 40(4) requires the final order within three months.

Dismissal or removal

Rule 41(1) forfeits pension and gratuity on dismissal or removal. The proviso allows a compassionate allowance of up to two-thirds of the pension or gratuity that would have been admissible on superannuation. Rule 44(5)(b) fixes the base below 10 years as the superannuation service gratuity, so the allowance is a fraction of a lump sum. The Rule 41(6) floor at the minimum pension speaks of a monthly amount and has nothing to operate on in that case.

Resignation forfeits the service gratuity

Rule 26(1) of the CCS (Pension) Rules, 2021 provides that resignation from a service or post “entails forfeiture of past service”, unless the appointing authority allows it to be withdrawn in the public interest. With the service forfeited there is no qualifying service, so no service gratuity and no retirement gratuity is payable on resignation.

Rule 26(2) is the exception: a resignation submitted to take up, with proper permission, another appointment under the Government where service qualifies does not forfeit past service. The service then carries forward to the new post, and the Rule 44(2) question is asked only when the servant finally retires.

Family benefits after a service gratuity

A service gratuity ends the retired servant’s claim to a family pension. Rule 50(1)(iii) of the CCS (Pension) Rules, 2021 grants family pension on a death after retirement only where the retired servant “was on the date of death in receipt of a pension, or compassionate allowance”. A retiree who took a service gratuity was in receipt of neither, so the family has no family pension.

The residuary gratuity under Rule 45(3) is the substitute. Where a servant who became eligible for a service gratuity dies within five years of retirement, and the sums actually received on account of that gratuity, together with the retirement gratuity, are less than 12 times emoluments, the deficiency may be paid to the family. A servant who drew Rs. 5,42,640 of service gratuity and Rs. 2,71,320 of retirement gratuity on emoluments of Rs. 63,840 leaves a residuary gratuity of Rs. 7,66,080 less Rs. 8,13,960, which is nothing. One who retired at four years on Rs. 29,200, the Level 5 entry cell, had emoluments of Rs. 46,720 and a service gratuity of 8 × Rs. 23,360 = Rs. 1,86,880, and leaves Rs. 5,60,640 less Rs. 1,86,880, or Rs. 3,73,760.

A death while still in service is different. Rule 50(1)(i) and (ii) grant family pension after one year of continuous service, or earlier where the servant was declared medically fit before appointment, with no 10-year condition, and Rule 45(1)(b) pays a death gratuity on its own slab scale from two times emoluments below one year.

Sanction, recovery of dues and interest on delay

The service gratuity is processed as a pension case by the Head of Office, along the timeline in the pension sanction process. Form 7 of the CCS (Pension) Rules, 2021, the assessment form the Head of Office sends to the Pay and Accounts Office four months before retirement, carries “Proposed pension / service gratuity (Rule 44)” as a line of its own.

Government dues are adjusted against gratuity under Rules 67 to 69 before payment, including licence fee and damages for government accommodation. Where departmental or judicial proceedings are pending, gratuity is withheld until they conclude, as the withholding and recovery from gratuity rules set out.

Rule 65 provides interest on a delayed gratuity at the rate applicable to General Provident Fund deposits, where payment was authorised after the due date and the delay was “attributable to administrative reasons or lapses”. The Secretary of the Ministry or Department, or an officer not below Joint Secretary authorised by the Secretary, must be satisfied of that cause and sanction the interest, which is then paid within two months under Rule 65(3)(b). No interest is due where the servant’s own failure to follow the procedure caused the delay. The interest on delayed pension article covers the procedure.

Tax treatment under the Income-tax Act, 2025

On the text of the Income-tax Act, 2025, the service gratuity is deductible in full under serial 3 of the Table in Section 19(1). Gratuity is salary under Section 16(c), and serial 3 deducts the entire death-cum-retirement gratuity that Section 19(2)(g)(A) defines as one “received under the revised pension rules of the Central Government, or the Central Civil Services (Pension) Rules, 2021”. The definition identifies the gratuity by the Rules under which it is paid, not by a rule number, and Rule 3(1)(o) of the 2021 Rules defines gratuity to include “‘service gratuity’ payable under rule 44” alongside the Rule 45 retirement and death gratuities.

Section 202(2)(a)(iv) withdraws only serial 1 of the Section 19(1) Table from the default new tax regime, so serial 3 is available under both regimes from tax year 2026-27. For financial year 2025-26 and earlier, the governing provision was Section 10(10)(i) of the Income-tax Act, 1961, repealed on 1 April 2026.

The residuary gratuity reaching a family is taxed on a different footing, because the recipient has no salary from the employment. That receipt falls under Schedule III, Table serial 38, read with Section 11, which the income tax for pensioners article and the residuary gratuity article treat in full.

Service gratuity under the National Pension System and the Unified Pension Scheme

The service gratuity exists only in the CCS (Pension) Rules, 2021, which Rule 2 applies to servants appointed on or before 31 December 2003 and, through its Explanation, to certain groups appointed later. A servant appointed on or after 1 January 2004 under the National Pension System receives a retirement gratuity and a death gratuity under the CCS (Payment of Gratuity under National Pension System) Rules, 2021, G.S.R. 658(E) dated 23 September 2021, on the Rule 45 formula and ceilings. Those Rules have no service gratuity, because the National Pension System pays no defined pension for one to substitute. Unified Pension Scheme subscribers take their gratuities under the same 2021 NPS gratuity Rules.

Rule 10(1) of the CCS (Implementation of National Pension System) Rules, 2021 requires every National Pension System employee to opt, in Form 1, between National Pension System benefits and those of the CCS (Pension) Rules, 1972 or the CCS (Extraordinary Pension) Rules, 1939 in the event of death, boarding out on disablement, or retirement on invalidation. Explanation (5) to Rule 2 of the 2021 Pension Rules carries that option across: where the employee opted for, or by default falls under, the old rules, “the benefits of Invalid Pension under rule 39 and Family Pension under rule 50 shall be payable”. The Explanation names those two benefits and not the Rule 44(2) service gratuity.

A servant appointed on or before 31 December 2003 who has served continuously since passed 10 years of service by the end of 2013. A service gratuity in 2026 therefore turns on qualifying service shorter than calendar service, or on one of the later-appointed groups in the Explanation to Rule 2. The largest of those is the temporary-status casual labourer regularised after 2003 under Explanation (4), whose qualifying service is governed by Rule 15 and can still fall short of 10 years. The others are induction trainees appointed regularly after 2003, servants with earlier pensionable service elsewhere, and servants brought in by a special or general order, such as Department of Pension and Pensioners’ Welfare OM No. 57/05/2021-P&PW(B) dated 3 March 2023 for posts advertised on or before 22 December 2003.

Service gratuity and the 8th Central Pay Commission

The rate of half a month’s emoluments per six-monthly period is set by Rule 44(2) of the CCS (Pension) Rules, 2021, not by a pay commission. The 8th Central Pay Commission, constituted by Department of Expenditure Resolution F. No. 01-01/2025-E.III(A) dated 3 November 2025, affects the service gratuity only through the pay matrix and dearness allowance that feed its emoluments. Changing the rate itself needs an amendment to Rule 44(2), and none has been notified.

Related Articles

• Central government pension
• Central government pension calculation
• CCS (Pension) Rules, 2021
• Gratuity for central government employees
• Death gratuity
• Residuary gratuity
• Withholding and recovery from gratuity
• Gratuity under the NPS Rules, 2021
• Qualifying service
• Break in service
• Extraordinary leave
• Emoluments (for pension)
• Average emoluments
• Basic pay
• Dearness allowance
• Dearness relief
• Minimum and maximum pension
• Commutation of pension
• Retiring pension
• Invalid pension
• Disability pension
• Compensation pension
• Compulsory retirement
• Compassionate allowance
• Dismissal and removal from service
• Resignation from government service
• Superannuation
• Voluntary retirement
• FR 56
• Permanent absorption
• Family pension
• Interest on delayed pension
• Pension sanction process and timeline
• Head of Office
• Income tax for pensioners
• Income-tax Act, 2025
• Old Pension Scheme
• National Pension System
• CCS (Implementation of NPS) Rules, 2021
• Unified Pension Scheme
• 8th Central Pay Commission

External references

• Department of Pension and Pensioners’ Welfare
• Pensioners’ Portal, CCS (Pension) Rules and orders
• Central Pension Accounting Office
• Department of Expenditure, Ministry of Finance
• The Gazette of India
• Income Tax Department

References

1. Central Civil Services (Pension) Rules, 2021, G.S.R. 868(E) dated 20 December 2021: Rule 2 (application to servants appointed on or before 31 December 2003), Rule 26 (forfeiture of service on resignation), Rules 31 and 32 (emoluments and average emoluments), Rules 33 to 39 (classes of pension and service gratuity), Rules 40 and 41 (compulsory retirement and compassionate allowance).
2. Central Civil Services (Pension) Rules, 2021, Rule 44(1) to (9): 10-year minimum for pension, service gratuity under sub-rule (2), dearness allowance and average emoluments under sub-rule (3), compulsory retirement and compassionate allowance under sub-rules (4)(b) and (5)(b), the three-month fraction under sub-rule (7), nine years nine months under sub-rule (8), and rounding under sub-rule (9).
3. Central Civil Services (Pension) Rules, 2021, Rule 45 (retirement gratuity, death gratuity, residuary gratuity under sub-rule (3), four years nine months under sub-rule (5)), Rule 50(1) (family pension) and Rule 65 (interest on delayed gratuity).
4. Central Civil Services (Pension) Rules, 1972, Rule 49(1A), inserted by notification G.S.R. 928(E) dated 21 December 2012, F. No. 38/80/08-P&PW: dearness allowance treated as emoluments for service gratuity.
5. Department of Pension and Pensioners’ Welfare, OM No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024: retirement and death gratuity ceiling raised to Rs. 25 lakh from 1 January 2024.
6. Central Civil Services (Extraordinary Pension) Rules, 2023, G.S.R. 63(E) dated 30 January 2023, Rule 10(2)(ii).
7. Central Civil Services (Implementation of National Pension System) Rules, 2021, Rule 10; Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, G.S.R. 658(E) dated 23 September 2021.
8. Income-tax Act, 2025, Section 16(c), Section 19(1) Table serial 3 read with Section 19(2)(g), and Section 202(2)(a)(iv), replacing Section 10(10)(i) of the Income-tax Act, 1961 from 1 April 2026.
9. 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.