Gratuity hike for central government employees: A look back at the 2400% jump from ₹1 lakh to ₹25 lakh

The maximum limit of gratuity paid to a central government employee on retirement is ₹25 lakh since last year. However, this has not always been the case.

A central government employee becomes eligible for retirement gratuity after completing a minimum qualifying service of five years.

Since the 4th Central Pay Commission (CPC), the gratuity ceiling for central government employees has increased by 2400%, from just ₹1 lakh to ₹25 lakh.

The fourth CPC had recommended a gratuity ceiling of ₹1 lakh. The interim report of the 5th pay commission recommended increasing the limit to ₹2.5 lakh. But in its final report, the 5th CPC raised it further to ₹3.5 lakh.

The sixth pay commission increased the gratuity ceiling by more than three times to ₹10 lakh with effect from January 1, 2006.

Gratuity hike demand before the 7th CPC

When the 7th Pay Commission was established in 2014, it encountered a demand to increase the gratuity limit from ₹10 lakh and to provide an indexation benefit on top of it.

Even the Department of Pension & Pensioners' Welfare (DoPPW) informed the 7th CPC that the then-existing gratuity limit of ₹10 lakh was “not commensurate” with the emoluments available to senior officers at the time of retirement.

Agreeing to demands, the 7th CPC recommended to increase the gratuity limit from ₹10 lakh to ₹20 lakh. It also said, "the ceiling on gratuity may increase by 25 percent whenever DA rises by 50 percent."

History of gratuity limit for central government employees

Source: 7th CPC report

Gratuity hiked in 2024 after DA became 50%

Effective January 1, 2024, the Dearness Allowance (DA) paid to central government employees increased to 50% of their basic salaries. Following this increase and in accordance with the 7th CPC recommendation, the government raised the gratuity by 25%, bringing it to ₹25 lakh.

“Accordingly, as per the Government's decisions in implementation of the recommendations of the Seventh CPC, the maximum limit of Retirement Gratuity and Death Gratuity under the Central Civil Services (Pension) Rules, 2021 or the Central Civil Services (Payment of Gratuity under National Pension System) Rules, 2021, would be increased by 25% i.e. from ₹20.00 Lakh to ₹25.00 Lakh, with effect from 1st January 2024,” the DoPPW said in an office memorandum dated May 5, 2024. The enhanced gratuity limit for central government employees is applicable from January 1, 2024.