Gratuity Limit Raised to ₹25 Lakh for Central Government Employees : In a major relief to central government employees, the maximum gratuity limit has now been increased from ₹20 lakh to ₹25 lakh. This change comes into effect from January 1, 2024, following the increase in Dearness Allowance (DA) beyond 50%.
Gratuity Limit Raised to ₹25 Lakh
The Department of Pension and Pensioners’ Welfare, under the Ministry of Personnel, Public Grievances and Pensions, has issued an official memorandum implementing the change.
According to the new order, the gratuity ceiling has been enhanced by 25% after the DA crossed the 50% threshold—an update aligned with the recommendations of the 7th Pay Commission.
Importantly, the entire ₹25 lakh gratuity amount is tax-free for central government employees. In contrast, employees working in the private sector still have a tax-free gratuity limit capped at ₹20 lakh.
What is Employee Gratuity?
Gratuity is a lump sum payment made by the employer to an employee as a token of appreciation for their long-term service. It is not a monthly salary component but is paid on retirement, resignation, death, or disability. To qualify, the employee must complete a minimum of 5 years of continuous service, except in cases of death or permanent disability.
Gratuity Limit Raised to ₹25 Lakh – How is Gratuity Calculated?
Gratuity is calculated based on the last drawn salary and tenure of service. Here’s the common formula used:
Gratuity = (15/26) × Last Drawn Salary × Years of Service
15 denotes the number of days for which salary is given.
26 is the number of working days in a month.
Only completed years of service are considered.
Note: For gratuity purposes, working at least 240 days in a year is considered one full year of service.
Unions Push for Higher Gratuity
In the recent pre-budget meeting with Finance Minister Nirmala Sitharaman, several trade unions demanded changes in gratuity calculation rules. They are advocating for:
“One month’s salary per year of service” instead of the current 15 days, to ensure higher retirement benefits for employees.
This proposal, if accepted, could significantly enhance the financial security of retiring employees across sectors.
Why the ₹25 Lakh Gratuity Limit Matters
The enhanced gratuity limit will benefit lakhs of retiring government employees. It also increases the pressure on the private sector and policymakers to revise outdated gratuity norms applicable to non-government employees. Stay updated on key policy changes that impact your retirement and salary benefits.
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