Gratuity is a financial reward granted by the government to its employees as a token of appreciation for their long and dedicated service. It is payable upon retirement, resignation, or death, provided the individual has completed at least five years of continuous service. For government employees, this payment is not only a mark of recognition but also a crucial component of their post-retirement corpus.
To qualify for gratuity under government service rules, an employee must fulfil the following conditions:
This benefit is applicable to both central and state government employees, subject to respective service rules.
As per the latest update effective from 1 January 2024, the maximum gratuity payable to a central government employee has been revised to ₹25 lakh, up from the earlier cap of ₹20 lakh.
Importantly, there is no minimum limit—the amount depends entirely on years of service and last drawn salary.
Under the Payment of Gratuity Act, for employees covered under the Act, the formula is:
Gratuity = (n × b × 15) / 26
Where:
n = Completed years of service
b = Last drawn basic salary + DA
15/26 represents 15 days’ wages for each year of service, with 26 being the average number of working days in a month.
Let’s apply the formula to a government employee with:
Using the Payment of Gratuity Act formula:
Gratuity = (25 × 75,000 × 15) / 26 = ₹10,81,731 (approx)
While both calculations are indicative, the applicable formula depends on whether the employee is under the Gratuity Act or governed strictly by Central/State Government rules.
Gratuity is a statutory right and a valuable component of post-retirement financial planning for government employees. Knowing how it is calculated helps in better understanding one’s retirement benefits and planning future finances accordingly.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: May 2, 2025, 3:24 PM IST
Team Angel One
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