The Union Cabinet's approval of a 3 percentage point rise in dearness allowance (DA) will also push up the retirement gratuity of central government employees, according to Mint. The actual gain, however, will differ from person to person and may be nil for some, because of the maximum payout limit.
Key points
- The Cabinet approved a DA increase from 60% to 63% of basic pay, effective 1 July 2026, on 28 October.
- Gratuity is calculated on basic pay plus DA on the date of retirement, so a higher DA raises the calculated amount.
- The gratuity ceiling is ₹25 lakh, so employees whose calculated gratuity is already above it will not get extra.
- The increase is expected to benefit around 48.54 lakh employees and 68.71 lakh pensioners.
How gratuity is calculated
Under Rule 45 of the Central Civil Services (Pension) Rules, 2021, retirement gratuity is one-fourth of an employee's emoluments for every completed six-month period of qualifying service. The maximum is 16.5 times the emoluments. Emoluments here mean basic pay and the DA applicable on the date of retirement. An employee generally needs at least five years of qualifying service to be eligible.
Examples from the report
Mint gives the example of an employee with a last-drawn basic pay of ₹80,000 and 33 years of qualifying service. At 60% DA, the DA is ₹48,000 and total emoluments are ₹1.28 lakh. At 63% DA, the DA is ₹50,400 and emoluments are ₹1.304 lakh.
With 33 years of service, the gratuity is 16.5 times the emoluments. That works out to ₹21.12 lakh at 60% DA and ₹21.516 lakh at 63% DA. The difference is ₹39,600, provided the employee retires at the revised DA rate and stays within the ceiling.
In a second example, an employee has a basic pay of ₹1 lakh and 33 years of service. At 60% DA, the calculated gratuity is ₹26.40 lakh. At 63% DA, it is ₹26.895 lakh, a difference of ₹49,500. Both figures are above the ₹25 lakh ceiling, so the amount actually paid stays at ₹25 lakh. The ₹49,500 is therefore only a notional increase.
Why the ceiling matters
The government raised the maximum gratuity from ₹20 lakh to ₹25 lakh from 1 January 2024, after DA reached 50% of basic pay. This was notified under the CCS (Pension) Rules, 2021 and the CCS (Payment of Gratuity under National Pension System) Rules, 2021.
According to Mint, the DA rise helps mainly those whose calculated gratuity stays below ₹25 lakh. The extra amount depends on basic pay, qualifying service and date of retirement. Employees with lower basic pay or fewer years of service may see a smaller increase. Those already above the ceiling may get no additional payout despite the higher DA.
Employees planning retirement should therefore work out their own figures using their basic pay, years of qualifying service and the DA rate on their retirement date, rather than assume a fixed gain of ₹50,000.
