Effective from August 1st, 2025, an increase in the maximum gratuity limit from ₹20 lakh to ₹25 lakh was declared by DoPPW, for central government employees. This enhancement of 25% goes hand in hand with the enhancement of Dearness Allowance (DA) to 50% of basic pay.
Importance and Nature of Gratuity
Gratuity is the amount paid to an employee in a lump sum, showing gratitude for the service rendered, which generally is given at the time of retirement or resignation after five years of continuous service. The amount will be computed based on the last drawn salary and length of service of the employee.
Reasons Behind the Increase in Gratuity
The ceiling increase in gratuity was connected with the DA reaching 50% of the basic pay. The 7th CPC recommended an increase in certain allowances and benefits by 25% when DA reaches this threshold, one of them being gratuity.
Applicability and Beneficiaries
This new gratuity limit would apply to central government employees under the Central Civil Services (Pension) Rules, 2021, and the Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021. Further, employees of BSNL and MTNL who have opted for pensions calculated on the combined service basis are also eligible for this increased gratuity.
Financial Implications
Thus, all eligible employees retiring afterward on or after January 1st, 2024, may receive an amount of ₹25 lakh as gratuity, depending on their salary and years of service, due to this gratuity ceiling increase. By doing so, this enhancement will surely add to the retirement corpus of the concerned employees along with standing as testimony to the government’s commitment to conferring its workforce with the benefit of financial security.
Tax Implications
As far as central government employees are concerned, the whole gratuity amount received is free from being taxed, meaning an increased ceiling would give these employees a higher tax-free gratuity amount on their retirement.
Conclusion
An upward revision of the gratuity ceiling to ₹25 lakh is indeed a welcome relief to central government employees, ensuring a healthy financial security base beyond their active years. Employees may, therefore, remain alert on such occasions and plan their retirements in favor of maximizing such benefits.
