Gratuity rules for government and private employees
Updated 11 October 2026
Gratuity is a lump sum your employer pays when you leave after long service. Central government employees get retirement gratuity of one-quarter of basic pay + DA for every completed six months of service, up to ₹25 lakh. Private-sector employees covered by law get 15/26 of their last monthly basic + DA for every completed year, up to ₹20 lakh, usually after five years of service.
Gratuity for central government employees
Retirement gratuity is paid under the CCS (Pension) Rules, 2021 for old-pension employees, and under separate gratuity rules for NPS employees, which give the same benefit. Employees in NPS and UPS get gratuity in addition to their pension benefits.
- Formula: 1/4 × emoluments × number of completed six-monthly periods of qualifying service.
- Emoluments: basic pay + DA on the date of retirement.
- Maximum: 66 six-monthly periods, so the most you can get is 16.5 × emoluments.
- Ceiling: ₹25 lakh from 1 January 2024. It was raised from ₹20 lakh by a DoPPW order of 30 May 2024, after DA reached 50%.
- Minimum service: 5 years of qualifying service for retirement gratuity.
Death gratuity, paid if an employee dies in service, uses a separate scale that pays a multiple of emoluments depending on length of service, with the same overall ceiling. See the DoPPW website for the current table.
Gratuity for private-sector employees
Private-sector gratuity used to be governed by the Payment of Gratuity Act, 1972. From 21 November 2025 it is covered by the Code on Social Security, 2020, one of the four new labour codes. The formula has not changed.
- Who is covered: establishments with 10 or more employees. Smaller employers may pay gratuity under their own policy.
- Eligibility: 5 years of continuous service. The five-year condition does not apply on death or disablement. Under the Code, fixed-term employees qualify after one year, in proportion to their service.
- Formula: 15/26 × last drawn monthly wages × completed years of service. The 15/26 means 15 days' wages for each year, taking a month as 26 working days.
- Part years: a part year of more than six months counts as a full year.
- Wages: basic pay + DA. Under the Code, if excluded allowances make up more than half of your total pay, the excess is added to wages, which can raise gratuity. See labour codes and your salary.
- Ceiling: ₹20 lakh.
- Payment: the employer must pay within 30 days of it becoming due; after that, interest is payable.
Try your own numbers in the gratuity calculator.
How gratuity is taxed
- Government employees (central, state and local authorities): fully exempt.
- Private employees covered by the law: exempt up to the least of (1) the gratuity received, (2) ₹20 lakh, and (3) 15/26 × last monthly basic + DA × years of service.
- Private employees not covered by the law: exempt up to the least of the amount received, ₹20 lakh, and half a month's average salary (of the last 10 months) for each completed year.
- The ₹20 lakh exemption is a lifetime limit across all employers.
These exemptions moved from section 10(10) of the old Act to section 19 of the Income-tax Act, 2025 from 1 April 2026, with the same effect. Any taxable part of gratuity is added to salary income in the year you receive it.
Practical points
- Nominate someone. File a nomination with your employer so that gratuity reaches your family quickly if something happens to you.
- Forfeiture. An employer can withhold gratuity, fully or partly, only in specific cases such as termination for misconduct that caused loss, riotous behaviour or an offence involving moral turpitude.
- Gratuity in CTC. Many companies show gratuity as about 4.81% of basic pay inside CTC. You receive it only if you complete the qualifying service. See CTC vs in-hand salary.