Effective from August 5, 2025, the Department of Pension and Pensioners’ Welfare (DoPPW) has moved to raise the maximum gratuity limit from ₹20 lakh to ₹25 lakh, indeed a decision that is likely to price goodwill among the central government employees. The enhancement is a direct result of the recent increase in Dearness Allowance (DA) to 50% of the basic pay.
Gratuity and Its Nature
Gratuity is a lump-sum payment awarded by the employer to the employee in appreciation of his or her services after leaving the organization, either on retirement or on resignation. This payment is made if the employee was with the organization for a minimum period of five years of continuous service. The gratuity amount is determined based on the salary last drawn and the length of service. The Central Civil Services (Pension) Rules govern the gratuity for central government employees.
Reason for Gratuity Increase
The increase in the gratuity ceiling is directly linked with the increase in DA beyond the mark of 50% of basic pay. Under the recommendations of the Seventh Central Pay Commission (7th CPC), all perks, benefits, and allowances are to be revised by an increase of 25% once DA crosses the 50% mark, which includes gratuity.
Applicability and Beneficiaries
According to the recently revised gratuity limit, the personnel of the central government covered under the Central Civil Services (Pension) Rules, 2021, and the Central Civil Services (Payment of Gratuity under National Pension Scheme) Rules, 2021, would benefit from the increased limit. Employees of corporations like Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL), who come under a combined service scheme where pension provisions are concerned, will also be entitled to the increased gratuity.
Financial Implications
With this enhanced ceiling in place, all eligible employees retiring from January 1, 2024, onwards will be able to avail gratuity amounting to ₹25 lakh, subject to the ranks and years of service. This enhancement not only adds a further boost to the retirement corpus of the employees but also shows the commitment on the part of the government to provide financial security for its workmen.
Tax Implications
An exemption from income tax is given for the entire gratuity amount received by central government employees. Therefore, under the higher ceiling, employees can now receive a higher amount of gratuity without being taxed upon retirement.
Conclusion
With the new proposal to increase the gratuity ceiling limit to 25 lakh, the proposal is a welcome approach towards a better financial environment for the central government employees after retirement. The employees should be adequately updated about this and plan their life thereafter in a way that maximizes benefits.
