Central government employees have received a significant boost as their dearness allowance (DA) has surpassed 50 per cent. This marks a rise from the previous Rs 20 lakh limit. Moreover, this gratuity amount remains entirely tax free for Central government retirees.
With this increase, the gratuity amount for retiring employees will now be Rs 25 lakh, effective 1 January, 2024.
In contrast, private-sector employees continue to have a tax-free gratuity limit of Rs 20 lakh. This adjustment is part of the government’s implementation of the 7th Pay Commission’s recommendations, which include a 25 per cent increase in the maximum limit for retirement and death gratuity under the Central Civil Services (Pension) 2021.
Gratuity is a lump sum provided to employees as a token of appreciation for their dedicated service. It is typically awarded upon retirement or after completing a significant tenure, often five years, with the same employer. While part of an employee’s overall salary package, gratuity is not paid monthly but is disbursed as a one-time payment when the employee leaves the organisation.
Gratuity is calculated based on the employee’s monthly salary and their length of service. To qualify, employees must have worked continuously for at least five years, although this requirement is waived in cases of death or disability.
The calculation considers 240 working days per year for a five-year service period. Employees are eligible for gratuity upon retirement, resignation after five years of continuous service, or in unfortunate circumstances such as death or disability caused by illness or accidents.
This revised gratuity limit provides significant financial relief and recognition for Central government employees, ensuring enhanced post-retirement benefits.
