Good news government employees. The Dearness Allowance for Central Government Employees has now surpassed 50 percent. As a result of this increase, the gratuity amount that central employees will receive upon retirement starting January 1, 2024, has risen to Rs 25 lakh, up from the previous Rs 20 lakh. Importantly, this gratuity of Rs 25 lakh is completely tax-free for retiring central employees. In contrast, private sector employees have a tax-free gratuity limit of only Rs 20 lakh.
Gratuity raised to Rs 25 lakh
The Department of Pension and Pensioners Welfare, part of the Ministry of Personnel, Public Grievances and Pensions, has released an office memorandum announcing that the maximum gratuity limit has been raised in line with the 7th Pay Commission’s recommendations, following the dearness allowance reaching 50 percent for central government employees.
According to this announcement, the government has decided to implement the 7th Pay Commission’s recommendations, resulting in a 25 percent increase in the maximum limit for retirement and death gratuity under the Central Civil Services (Pension) 2021. This adjustment raises the limit from Rs 20 lakh to Rs 25 lakh, effective January 1, 2024.
What is gratuity?
Gratuity is a sum of money awarded to an employee as a token of appreciation for their service to the employer. It is provided to employees after they have served for a significant period, typically five years, either upon retirement or when they leave the organization. While gratuity is part of an employee’s gross salary, it is not disbursed regularly; instead, it is paid as a lump sum when the employee departs from the company.
Gratuity calculation works like this!
Gratuity is determined based on the monthly salary an employee earns. To qualify for gratuity, an employee must have worked continuously for a minimum of 5 years. However, this requirement is waived in cases of the employee’s death or disability.
For calculating gratuity over a 5-year period, 240 days per year are considered as working days. Gratuity is awarded when an employee retires, becomes eligible for retirement, resigns after 5 years of continuous service with the same company, or in the unfortunate event of the employee’s death or disability due to illness or an accident.
