In the year 2025, the Indian Government declared the major changes in the rules for gratuity — the full amount benefit which is given to the employees at the time of their retirement or leaving after the qualifying service. One of the most significant adjustments: the maximum gratuity limit has been inflated to ₹ 25 lakh for the civil servants of the central government who are within the ambit of the Payment of Gratuity Act, 1972 and the associated rules. The inflating was made from January 1, 2024, but the signs and the extensions of the guidance were released in 2025. The elevated limit is applicable only to some groups (namely, the civil servants governed by the Central Civil Services (Pension) Rules or CCS (Payment of Gratuity under NPS) Rules) and expressly excludes the employees of PSUs, banks, autonomous bodies, universities, or state government staff unless they are covered by similar rules.
Eligibility & Minimum Service Requirements
The Payment of Gratuity Act provides that an employee usually becomes entitled to gratuity after completing five years of continuous service in the same organization. The method of calculation is normally “15 days’ wages for every completed year of service,” where wages consist of basic pay plus dearness allowance (DA) in most cases. The new rule requires that employees and retirees should confirm that their service record, salary, and DA information are accurately maintained — any inconsistency may result in the final gratuity payout being affected.
What the Increase to ₹ 25 Lakh Signifies
The central government employees who fall under the eligible service rules will be able to claim ₹ 25 lakh. The increase of ₹ 5 lakh is a very significant move that has been made considering the inflation, rise in pay and cost of living. The long serving employees with higher last drawn salary will then get a larger amount of final gratuity – especially those who retire after 25+ years or at higher pay grades. But, since the calculation remains “15 days’ wages× years of service”, due to the increase in salary (from pay commission hikes) along with the higher cap, the bigger benefit is for all the employees who retired in the fiscal year 2022-23.
Key Considerations for Employees & Retirees
- If you are under the central civil services rule-set, check first if you are in the eligible category for the ₹ 25 lakh cap, and then check if the salary and DA you received are correctly entered.
- Employees from PSUs, state governments, banks or autonomous bodies should check their own rules as the increased cap might not apply to them under the same scheme.
- Make sure your service record is correct- years of service, salary progression and DA additions are important in the final calculation.
- If you are nearing retirement, think about how this new cap would affect your exit planning and whether it would be advantageous for you to delay retiring by a year (due to one more year of wages and accrual).
- Realize that the maximum cap is higher but your gratuity is still going to depend on your basic and DA at the time of retirement, service years and the formula applicable to your rule-set.
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