Withholding and recovery from gratuity

Withholding and recovery from gratuity is the set of provisions in the Central Civil Services (Pension) Rules, 2021 under which a central government employee’s retirement or death gratuity may be held back, or have an amount deducted from it, instead of being paid in full. The rules allow it on two grounds only: adjustment of assessed government dues under Rules 67 to 69, and departmental or judicial proceedings under Rule 8. The 10% held back from a provisional gratuity under Rule 62(3)(a)(ii) is not a third ground: it is an interim margin against the final assessment, released once the Pension Payment Order issues. The Supreme Court held in State of Jharkhand v. Jitendra Kumar Srivastava (2013) that pension and gratuity can be withheld only under the authority of a statutory rule, so a deduction outside these provisions has no legal basis.

The gratuity for central government employees is one-fourth of emoluments for each completed six-monthly period of qualifying service, up to 16.5 times emoluments, under Rule 45(1)(a), and it is capped at Rs. 25 lakh from 1 January 2024 by Department of Pension and Pensioners’ Welfare (DoPPW) Office Memorandum No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024. It is paid as one sum at retirement, which makes it the benefit most exposed to a recovery. The pension is protected by a floor and a recovery cap that the gratuity does not have.

The dues route is administrative: Rule 69 requires an assessment of dues for every retiree, and Rule 68 adds the Directorate of Estates check for every allottee of government accommodation. The proceedings route is disciplinary and arises only where a Rule 14 inquiry or a judicial proceeding is pending or is instituted. They run on different rules, different authorities and different time limits, and the interest a retiree can claim on a gratuity held back too long depends on which route held it.

Grounds for withholding a gratuity

A central government gratuity can be held back on two grounds under the CCS (Pension) Rules, 2021, notified by G.S.R. 868(E) on 20 December 2021, and on no others.

Table: grounds for withholding or recovery from gratuity, CCS (Pension) Rules, 2021, G.S.R. 868(E), 20 December 2021, as amended by G.S.R. 770(E), 7 October 2022.

Dues need no finding of fault. The Head of Office assesses them and adjusts them against the gratuity. Withholding for misconduct needs a proceeding instituted under the CCS (CCA) Rules or in a court, and a final order on it.

Government dues recoverable under Rule 67

Rule 67(2) of the CCS (Pension) Rules, 2021 adjusts against the retirement gratuity the government dues that the Head of Office has ascertained and assessed and that remain outstanding on the date of retirement. The Explanation to Rule 67(2) lists them in two clauses, and the list is closed.

• Clause (a), government accommodation: arrears of licence fee; damages for occupation beyond the permissible period after retirement, subletting, unauthorised occupation, or transfer to an ineligible office; and electricity, water and PNG charges.
• Clause (b), other dues: the balance of a house building advance, a conveyance advance or any other advance; an overpayment of pay and allowances or leave salary; and arrears of income tax deductible at source.

Rule 67(3) closes the list. It provides that “any other dues which are not Government dues in terms of sub-rule (2) shall not be recoverable from the amount of retirement gratuity”. A claim the Head of Office cannot place under clause (a) or clause (b) cannot be set off, whatever its merits, and has to be pursued by some other legal route.

Clause (b), as notified in 2021, refers to tax deductible at source under the Income Tax Act, 1961. That Act was repealed on 1 April 2026 by Section 536(1) of the Income-tax Act, 2025, and tax deducted from salary paid on or after that date falls under Section 392 of the 2025 Act. The rule text has not been re-worded to match, but the recoverable head, arrears of tax that should have been deducted from salary, is the same.

Accommodation dues under Rule 68 and the No Demand Certificate

Rule 68 of the CCS (Pension) Rules, 2021 recovers accommodation dues on a fixed timetable before retirement, so that by the date of retirement the licence fee is known and only a known figure comes out of the gratuity. The Directorate of Estates supplies the figures for General Pool housing and issues the No Demand Certificate.

Table: accommodation dues timetable, Rules 55 and 68, CCS (Pension) Rules, 2021, G.S.R. 868(E), 20 December 2021.

The 10% withholding is conditional

Rule 68(5) of the CCS (Pension) Rules, 2021 applies only where, in a particular case, it is not possible for the Directorate of Estates to determine the outstanding licence fee. In that case the Directorate tells the Head of Office that 10% of the gratuity may be withheld pending further information. A retiree whose licence fee the Directorate has reported under Rule 68(1) loses only the actual arrears and the retention-period licence fee under Rules 68(3) and 68(4), and nothing is withheld on top of that.

Where the 10% is withheld, Rule 68(6) releases it immediately on production of the No Demand Certificate after actual vacation, and Rule 63(3) adjusts it against the licence fee the Directorate reports and refunds the balance. As an illustration, on a retirement gratuity of Rs. 20,00,000 the Rule 68(5) withholding is Rs. 2,00,000; if the Directorate later reports Rs. 18,400 of licence fee, Rs. 1,81,600 is refunded.

Interest when the No Demand Certificate is late

Rule 68(7)(a) of the CCS (Pension) Rules, 2021 requires the Directorate of Estates to issue the No Demand Certificate within 14 days of the application made after the accommodation is vacated. If it misses that date, Rule 68(7)(b) gives the retiree interest at the General Provident Fund rate on the excess withheld gratuity that has to be refunded. Rule 68(7)(c) makes the Directorate pay that interest through the Accounts Officer, from the date of the application to the date of refund. This interest stands apart from Rule 65: it needs no Secretary-level finding of an administrative lapse, only the missed 14-day deadline.

Recovery from dearness relief after the gratuity is paid

Rule 68(8) of the CCS (Pension) Rules, 2021 allows licence fee, damages, and electricity, water or PNG charges still unpaid after the gratuity has been adjusted, or where no gratuity was withheld, to be recovered through the Accounts Officer from the pensioner’s dearness relief without consent. No dearness relief is disbursed until the dues are cleared. The rule reaches the dearness relief only, never the basic pension, so a damages bill for overstaying in a government house can still be recovered after the gratuity has been paid.

Other dues assessed under Rule 69

Rule 69 of the CCS (Pension) Rules, 2021 governs every Rule 67 due other than accommodation, and the Head of Office assesses these dues without the Directorate of Estates. For retirement on superannuation, Rule 69(1) starts the assessment one year before the date of retirement, or on the date the employee proceeds on leave preparatory to retirement if that is earlier. Rule 69(2) requires it to be complete eight months before retirement. For any other retirement, such as voluntary retirement, the assessment starts immediately on retirement, or when the fact of retirement becomes known to the Head of Office if that is earlier, and must be complete within 30 days.

Rule 69(3) adjusts the assessed dues against the retirement gratuity, together with dues that come to notice later and remain outstanding on the date of retirement. A pay fixation found wrong at the pre-retirement check, for example, produces a recoverable overpayment of pay and allowances under clause (b). Recovery of an overpayment of pension after retirement is a separate matter, governed by Rule 66 and covered in recovery of overpayment from pension.

Provisional gratuity under Rule 62 when the pension case is delayed

Rule 62 of the CCS (Pension) Rules, 2021 applies when the pension and gratuity cannot be finally assessed by the date of retirement for reasons other than a departmental or judicial proceeding. Rule 62(3)(a)(ii) authorises 100% of the gratuity as provisional gratuity while withholding 10% of it. Rule 62(3)(b) then brings the Rule 67 dues into the letter of sanction, and Rule 62(3)(b)(ii) deducts the withheld 10% and the Rule 68 accommodation dues from what is drawn.

The 10% under Rule 62 serves a different purpose from the 10% under Rule 68(5). It is a margin against the final assessment. Rule 62(6)(b) lets the Accounts Officer adjust any excess provisional pension out of it, and Rule 62(8) releases the balance once the Pension Payment Order issues, after adjusting dues that came to notice later. Rule 62(9) holds the withheld amount until the No Demand Certificate where the retiree is or was an allottee of government accommodation.

A provisional gratuity paid in excess of the final figure is not recovered from the retiree. Rule 62(6)(c)(i) says the retiree “shall not be required to refund the excess amount actually disbursed”, and Rule 62(6)(c)(ii) makes the officials responsible accountable for the overpayment. The provisional stage cannot last beyond six months: Rule 62(7) makes the provisional figures final if the Head of Office and the Accounts Officer have not settled them by then. The pension sanction process and timeline covers the forms and deadlines that lead to the order.

Gratuity withheld while proceedings are pending at retirement

Rule 8(4)(c) of the CCS (Pension) Rules, 2021 bars payment of the gratuity while a departmental or judicial proceeding is pending at retirement: “No gratuity shall be paid to the Government servant until the conclusion of the departmental or judicial proceedings and issue of final orders thereon.” Rule 63(5)(a) repeats the bar for the Accounts Officer. Meanwhile Rule 8(4)(a) pays a provisional pension equal to the maximum pension admissible on qualifying service up to retirement, or up to the date immediately preceding the date of suspension if the employee was under suspension at retirement.

Whether a proceeding is pending is fixed by the Explanation to Rule 8. A departmental proceeding is instituted on the date the statement of charges is issued to the employee, or on the earlier date of suspension. A criminal proceeding is instituted on the date the complaint or police report on which the magistrate takes cognizance is made, and a civil proceeding on the date the suit is filed. The charge sheet is therefore the usual dividing line.

Two kinds of case fall outside the bar:

1. Proceedings only contemplated. Rule 8(4)(d) excludes cases where allegations are under investigation, or a proceeding is contemplated but not instituted by the date of retirement. The pension and gratuity are then authorised under Rule 63 as for any other retiree.
2. Minor penalty proceedings. Rule 8(2)(b) provides that a proceeding instituted under Rule 16 of the CCS (CCA) Rules, 1965 while in service and continued after retirement “shall have no effect on the pension and gratuity of the pensioner”. Rule 16 is the minor penalty procedure, so only a Rule 14 major penalty inquiry or a judicial proceeding withholds the gratuity. The major and minor penalty proceedings article sets out the two procedures.

When the proceeding ends, Rule 63(5)(a) requires the Head of Office to send the final orders with Form 7-A within 30 days, and Rule 63(5)(b) requires the Accounts Officer to authorise the final pension within 30 days of receiving them. Under Rule 8(5), no part of the provisional pension is recovered even where the final pension is lower, reduced or withheld.

Withholding and recovery for grave misconduct under Rule 8(1)

Rule 8(1) of the CCS (Pension) Rules, 2021 allows a gratuity to be withheld in full or in part, and the whole or part of any pecuniary loss caused to the government to be recovered from it, where a departmental or judicial proceeding finds the pensioner guilty of grave misconduct or negligence during service. Service includes service on re-employment after retirement. The same rule reaches the pension, which withholding of pension covers.

The CCS (Pension) Amendment Rules, 2022, notified by G.S.R. 770(E) dated 7 October 2022, substituted Rule 8(1) and redesignated the authority competent to pass the final order. The President passes it where the President is the appointing authority for the post, and the Secretary of the administrative Ministry or Department, or the Comptroller and Auditor General for a pensioner of the Indian Audit and Accounts Department, passes it in other cases. The Union Public Service Commission is consulted only where the President is the authority. A proceeding begun by a subordinate authority is reported to the competent authority for the final decision under the proviso to Rule 8(2)(a).

Rule 8(2)(c) governs a departmental proceeding not instituted while the employee was in service. It needs sanction, cannot relate to any event that took place more than four years before its institution, and must follow the procedure for a proceeding in which dismissal from service could have been ordered. The four-year limit applies to departmental proceedings only; a criminal prosecution, for example under the Prevention of Corruption Act, carries its own limitation law.

Rule 8(7) and Rule 8(8) allow the order to be revised or reviewed. The provisos to both sub-rules, as notified on 20 December 2021, bar an order enhancing the amount of gratuity withheld unless the pensioner has had a reasonable opportunity to represent against the proposal and the Union Public Service Commission has been consulted.

Limits that protect the pension but not the gratuity

Three limits in the CCS (Pension) Rules, 2021 protect the pension, and none of them reaches the gratuity.

• The minimum pension floor. A proviso to Rule 8(1) bars a partial withholding from reducing the pension below the minimum pension of Rs. 9,000 a month under Rule 44. It speaks of “pension” only.
• The one-third cap. Rule 8(6) applies where the order does not withhold or withdraw the pension but recovers a pecuniary loss from it: the recovery is not ordinarily made at a rate above one-third of the pension admissible on the date of retirement. It limits recovery from the monthly pension and says nothing about the gratuity.
• The future good conduct rule. Rule 7(1)(b) lets the appointing authority withhold or withdraw a pension where a pensioner is convicted of a serious crime or found guilty of grave misconduct after retirement. It names the pension and family pension only, so it gives no power over a gratuity.

The consequence is that a Rule 8(1) order can take the whole gratuity, and can recover a pecuniary loss from it up to its full amount. The limits that remain are the closed list of dues in Rule 67(3), the four-year limit in Rule 8(2)(c)(ii), and the requirement of a proceeding and a finding of grave misconduct or negligence before Rule 8(1) applies.

Interest on a gratuity withheld too long

Interest on a delayed gratuity runs under Rule 65 of the CCS (Pension) Rules, 2021 at the General Provident Fund rate, and Rule 65(5) fixes the start date by the kind of case.

Table: start dates for interest on delayed gratuity, Rules 65(5) and 68(7), CCS (Pension) Rules, 2021, G.S.R. 868(E), 20 December 2021.

Rule 65(1) pays interest only where the delay was attributable to administrative reasons or lapses, and none is payable where the retiree failed to follow the prescribed procedure. Rule 65(2) requires the Secretary of the Ministry or Department, or an officer not below Joint Secretary, to sanction it, and Rule 65(3)(b) requires payment within two months of that sanction. The detail is in interest on delayed pension.

The courts apply the same principle to a gratuity withheld without authority. In D.D. Tewari v. Uttar Haryana Bijli Vitran Nigam Ltd., (2014) 8 SCC 894, decided on 1 August 2014, an employer withheld a retiree’s gratuity on alleged dues when no disciplinary proceeding was pending at retirement. Applying State of Kerala v. M. Padmanabhan Nair, (1985) 1 SCC 429, under which pension and gratuity are “valuable rights and property in their hands”, the Supreme Court awarded 9% a year from the date of entitlement.

Death gratuity and government dues

The death gratuity payable to the family of an employee who dies in service is subject to dues, but on terms set by the death-case rules of the CCS (Pension) Rules, 2021, not by Rules 68 and 69.

• Licence fee waived. Rule 71(4)(a) waives the licence fee outstanding for the period before death. Where the family retains the house, Rule 71(4)(b) does not recover the licence fee for the month of death and the first three months after it.
• Directorate of Estates reports within a month. Rule 77(1)(i) requires the Head of Office to approach the Directorate of Estates within seven days of the intimation of death, and Rule 77(1)(v) gives the Directorate one month to report any other accommodation dues.
• 10% held meanwhile. Rule 77(1)(vi) withholds 10% of the death gratuity pending that report. Under Rule 77(1)(vii), if no report comes or the Directorate cannot assess the dues, nothing is presumed recoverable and the 10% is paid to the family.
• Dearness relief recovery. Rule 77(1)(x) allows licence fee or damages still unpaid to be recovered from the family pensioner’s dearness relief without consent.
• Other dues. Rule 77(2) requires the Head of Office to ascertain within 15 days any Rule 67 dues other than accommodation, and to recover them from the death gratuity. Rule 74(4)(c) caps the amount held over for unassessed dues at 10% of the gratuity.

Rule 8(1) acts on a pensioner, so it has no application to a death in service. Where a proceeding pending against a retiree is dropped because the retiree dies, Rule 65(5)(e) pays interest on the withheld gratuity from three months after the death.

Forfeiture on dismissal or removal

Rule 41(1) of the CCS (Pension) Rules, 2021 provides that an employee who is dismissed or removed from service forfeits both pension and gratuity. The authority competent to dismiss or remove may sanction a compassionate allowance of up to two-thirds of the pension or gratuity, or both, that would have been admissible on retirement on superannuation, if the case deserves special consideration.

Withholding under Rule 8(1) works on a gratuity that has arisen because the employee retired. Dismissal and removal from service are penalties imposed in service; Rule 8 is the route for misconduct discovered or proved after retirement. A compulsory retirement imposed as a penalty is neither: it carries its own gratuity reduction to not less than two-thirds of the full amount.

NPS and UPS employees

An employee under the National Pension System draws gratuity under the CCS (Payment of Gratuity under National Pension System) Rules, 2021, notified as G.S.R. 658(E) on 23 September 2021, and those rules carry their own withholding and recovery provisions.

• Dues. Rules 45 to 47 reproduce the government dues machinery of Rules 67 to 69 of the CCS (Pension) Rules, 2021, including the closed list.
• Withholding for misconduct. Rule 5(1), as notified in 2021, reserves to the President the right to withhold the gratuity in full or in part, and to recover a pecuniary loss from it, where a proceeding finds grave misconduct or negligence, with the Union Public Service Commission consulted. Rule 5(1) reaches only proceedings “instituted while the Government servant was in service”, so it has no counterpart to Rule 8(2)(c) of the pension rules: a proceeding begun after retirement cannot withhold an NPS gratuity under it.
• Pending proceedings. Rule 5(2)(b) bars payment until the proceeding concludes and final orders issue.

The gratuity under the NPS Rules, 2021 article covers the rest of that code. For the Unified Pension Scheme, regulation 13(3) of the PFRDA (Operationalisation of Unified Pension Scheme under National Pension System) Regulations, 2025, inserted by the amendment regulations of 23 December 2025 (F. No. PFRDA-16/07/0001/2025-SUP-CG), provides that where departmental or judicial proceedings are pending on retirement, “the subscriber shall be granted benefits in accordance with UPS Rules”, and the proviso grants the same on exoneration. The benefit on a pending proceeding is therefore fixed by the CCS (Implementation of Unified Pension Scheme under National Pension System) Rules, 2025 (G.S.R. 599(E), 2 September 2025), not by the regulator.

Related Articles

• Gratuity for central government employees
• Death gratuity
• Service gratuity
• Residuary gratuity
• Gratuity under the NPS Rules, 2021
• Withholding of pension
• Provisional pension
• Anticipatory pension
• Interest on delayed pension
• Recovery of overpayment from pension
• Pension sanction process and timeline
• No Demand Certificate
• Directorate of Estates
• Government accommodation
• Last pay certificate
• House building advance
• Dearness relief
• Head of Office
• Departmental inquiry
• Charge sheet and articles of charge
• Major and minor penalty proceedings
• Minor penalty
• Suspension
• Misconduct
• Dismissal and removal from service
• Compulsory retirement
• Compassionate allowance
• CCS (CCA) Rules
• CCS (Pension) Rules, 2021
• Minimum and maximum pension
• Superannuation
• Voluntary retirement
• National Pension System
• Unified Pension Scheme
• Union Public Service Commission
• Department of Pension and Pensioners’ Welfare

External references

• Department of Pension and Pensioners’ Welfare
• Pensioners’ Portal, Department of Pension and Pensioners’ Welfare
• Directorate of Estates, Ministry of Housing and Urban Affairs
• Central Pension Accounting Office
• The Gazette of India
• Department of Personnel and Training

References

1. Central Civil Services (Pension) Rules, 2021, notified by G.S.R. 868(E), F. No. 38/3/2017-P&PW(A), dated 20 December 2021: Rule 7 (future good conduct), Rule 8 (power to withhold or withdraw pension or gratuity, provisional pension and the bar on gratuity in sub-rules (3) to (5), the one-third cap in sub-rule (6)), Rule 41 (forfeiture on dismissal or removal and compassionate allowance), Rule 45 (retirement and death gratuity), Rule 55 (intimation to the Directorate of Estates), Rule 62 (provisional pension and gratuity on delay), Rule 63 (authorisation by the Accounts Officer), Rule 65 (interest on delayed payment), Rules 67 to 69 (government dues), Rule 71(4) (waiver of licence fee on death), Rule 74(4) (dues held over on death) and Rule 77 (adjustment of government dues on death).
2. Central Civil Services (Pension) Amendment Rules, 2022, notified by G.S.R. 770(E) dated 7 October 2022, substituting Rule 8(1) and redesignating the authority competent to pass final orders.
3. Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, notified as G.S.R. 658(E) on 23 September 2021: Rule 5 (right of President to withhold gratuity) and Rules 45 to 47 (government dues).
4. Central Civil Services (Implementation of Unified Pension Scheme under National Pension System) Rules, 2025, notified by G.S.R. 599(E) dated 2 September 2025, Rule 22 (effect of proceedings pending on retirement).
5. Department of Pension and Pensioners’ Welfare Office Memorandum No. 28/03/2024-P&PW(B)/Gratuity/9559 dated 30 May 2024, raising the retirement and death gratuity ceiling to Rs. 25 lakh with effect from 1 January 2024.
6. Income-tax Act, 2025, Section 392 (deduction of tax from salary) and Section 536(1) (repeal of the Income-tax Act, 1961 from 1 April 2026).
7. Supreme Court of India: State of Jharkhand v. Jitendra Kumar Srivastava, (2013) 12 SCC 210, holding that pension and gratuity can be withheld only under the authority of a statutory rule; D.D. Tewari v. Uttar Haryana Bijli Vitran Nigam Ltd., (2014) 8 SCC 894, decided on 1 August 2014, awarding 9% interest on a gratuity withheld when no proceeding was pending.