Gratuity calculation formula / payment for Central Government Employees

What is Gratuity

Gratuity is a financial component offered by an employer to an employee in recognition of his/her service rendered to an organisation. It is a part of the salary an employee receives and can be viewed as a benefit plan designed to aid an individual in his/her retirement.

A retired or deceased Central Government employee is eligible for a maximum retirement or death payout of Rs 20 lakh. According to the Department of Pension and Pensioners' Welfare's (DoPPW) "Pension Rules 2021," a Government servant who has completed five years of qualifying service and has become eligible for service gratuity or pension under Rule 44 can be paid a retirement gratuity equal to one-fourth of emoluments for each completed six monthly periods of qualifying service.

Retirement Gratuity

"A Government servant who has completed five years of qualifying service and has become eligible for service gratuity or pension under Rule 44 shall be granted a retirement gratuity equal to one-fourth of his emoluments for each completed six-month period of qualifying service, subject to a maximum of 16.5 times the emoluments," according to Pension Rules 2021. There is no minimum limit for the amount of gratuity. The retirement gratuity payable for qualifying service of 33 years or more is 16½ times the Basic Pay plus DA, subject to a maximum of Rs. 20 lakhs. The pensioners who retired from 1st January 2020 to 30th June 2021, will get the DA for the calculation of the gratuity will the notional DA the one which they would have got without freezing of DA.

If a government employee dies while on the job, the family receives a death payment. The following is the death gratuity payment rate:

Death Gratuity

1. If the qualifying service is less than a year, then the gratuity to be paid is equal to two times the emoluments.
2. For one year or more of qualifying service but less than five years, the amount of gratuity to be paid is 6 times the amount of emoluments.
3. For 5 years or more of qualifying service but less than 11 years, the gratuity to be paid is equal to 12 times the emoluments received.
4. For 11 years or more but not more than 20 years, you are eligible for the following benefits: The gratuity to be paid is equal to 20 times the emoluments received.
5. If you have 20 years or more of eligible service, for each completed six-monthly period of qualifying service, a gratuity of half of the emoluments will be awarded, subject to a cap.

The above death gratuity rates also apply in the event of a Government employee's suicide death.

According to Pension Rules 2021, if a government retired government official dies within 5 years of retirement and without receiving an amount equal to or 12 times his emoluments in gratuity or pension, his family may be granted a residuary gratuity equivalent to the deficiency.

Service Gratuity

A retiring Government servant will be entitled to receive service gratuity (and not pension) if the total qualifying service is less than 10 years. The admissible amount is half a month’s basic pay last drawn plus DA for each completed 6 monthly periods of qualifying service. This one-time lump sum payment is distinct from retirement gratuity and is paid over and above the retirement gratuity.
 

Qualifying service for Gratuity Calculation

A fraction of a year equal to three months or more is treated as a completed six-month period and counted as qualifying service for computing the length of the qualifying service. for example, if an employee has worked for at least 4 years and 9 months but less than 5 years, his or her qualifying service for gratuity purposes will be counted as 5 years. In addition, he or she will be entitled to a retirement bonus.

Dearness Allowance

Dearness allowances payable on the day of retirement or death are also recognized as emoluments for the purposes of calculating gratuity, according to the Pension Rules 2021.