Retirement and Service Gratuity – Calculation, Ceiling, Qualifying Service and Rates

What is Gratuity?

Gratuity is a bulk amount paid by the employer to his/her employee for his/her service at the time of retirement under the Gratuity Act 1972.

7th Pay Commission Gratuity

Death, Retirement and Service Gratuity for CG Employees

What is Gratuity in Central Government Services?

Gratuity is a hidden savings of employees working in Government Service. Gratuity amount is calculated depends upon his period of service. The bulk amount of Gratuity is usually paid at the time of retirement. In some cases, it can be paid before as per existing rules.

How to calculate Gratuity?

Calculation of Gratuity = [ (Basic Pay + Dearness Allowance) x 15 days x Number of Years of Service ] / 26 Days.

Why calculating taken 26 Days instead of 31?

As per the labour law in India, the maximum working days in a month should be 26. Weekly holiday should be given to employees is compulsory.

What is the ceiling of Gratuity?

The 7th pay commission recommended to enhance the ceiling of Gratuity from Rs. 10 lakh to 20 lakh.

There are three types of Gratuity in force in Government services…

Retirement Gratuity

This is payable to the retiring Government servant. A minimum of 5 years’ qualifying service and eligibility to receive service gratuity/pension is essential to get this one time lump sum benefit. Retirement gratuity is calculated @ 1/4th of a months Basic Pay plus Dearness Allowance drawn on the date of retirement for each completed six monthly period of qualifying service.

There is no minimum limit for the amount of gratuity. The retirement gratuity payable for qualifying service of 33 years or more is 16 times the Basic Pay plus DA, subject to a maximum of Rs. 20 lakhs.

Death Gratuity

This is a one-time lump sum benefit payable to the nominee or family member of a Government servant dying in harness. There is no stipulation in regard to any minimum length of service rendered by the deceased employee. Entitlement of death gratuity is regulated as under:

Qualifying Service	Rate
Less than one year	2 times of basic pay
One year or more but less than 5 years	6 times of basic pay
5 years or more but less than 11 years	12 times of basic pay
11 years or more but less than 20 years	20 times of basic pay
20 years or more	Half of emoluments for every completed 6 monthly period of qualifying service subject to a maximum of 33 times of emoluments.

Maximum amount of Death Gratuity admissible is Rs. 20 lakhs w.e.f. 1.1.2016

Service Gratuity

A retiring Government servant will be entitled to receive service gratuity (and not pension) if total qualifying service is less than 10 years.

Admissible amount is half months basic pay last drawn plus DA for each completed 6 monthly period of qualifying service. This one time lump sum payment is distinct from retirement gratuity and is paid over and above the retirement gratuity.

Latest Developments on Gratuity

Revision of Gratuity and Severance Amount to GDS July 24, 2019

7th Pay Commission Committee recommendations on Gratuity July 23, 2019

Stoppage of Retirement and Death Gratuity to the NPS Subscribers May 28, 2019

IT Exemption for Gratuity upto 20 Lakhs – Gazette Notification March 15, 2019

IT Exemption on Gratuity – 20 lakhs w.e.f. 29.3.2018 March 12, 2019