The Central Civil Services (Payment of Gratuity under National Pension System) Amendment Rules change the eligibility effective as of May 2025. Per the Code on Social Security, 2020, the contractual employee who has one year of service and permanent employee with five years will now qualify.
Higher Gratuity Ceiling
The central government employees gratuity ceiling increases to ₹25 lakh (it was 20 lakh before) which becomes effective in January 2024 after a 50% increase in Dearness Allowance (DA). Workers in the private sector are awaiting the same amendments and CITU is pushing towards that.
New Calculation Formula
Under the new formula, Gratuity = (Last Drawn Basic Pay + DA) x 15 x Years of Service/26. This increases the payouts, especially to long-term workers who are assured of better retirement benefits.
Faster Digital Disbursal
The 2025 regulations require the use of digital claims processing through e-portals through e-signatures. Claims are monitored in centralized dashboards, which improve efficiency as it has been shortened by less than 30 days compared to the 812 weeks period.
Exceptions for Short Tenure
Gratuity applies to employees who have 4 years and 240 days of service as per a Madras High Court ruling. Tenure on death or disability cases has no restrictions and therefore is very broad.
Tax Exemption Limits
Section 10(10) provides tax exemption on gratuity to the extent of ₹20 lakh, to employees in the private sector. The central government workers are fully exempt and the ₹25 lakh ceiling proposed is awaiting a private sector approval.
Gratuity Rules 2025 Overview
| Aspect | Details |
|---|---|
| Eligibility | 5 years (4 years 240 days in some cases); 1 year for contractual workers |
| Ceiling | ₹25 lakh (govt), ₹20 lakh (private) |
| Formula | (Basic + DA) × 15 × Years ÷ 26 |
| Tax Exemption | Up to ₹20 lakh (private); full (govt) |
Stay Informed and Plan Ahead
The 2025 gratuity regulations increase the benefits on millions of people, extending eligibility, increasing ceilings and accelerating payouts. Maximizing benefits requires that employees check service records, update contracts and ensure that epfindia.gov.in is updated.
Also read: SBI PPF Scheme: Why It’s Still India’s Most Trusted Retirement Investment in 2025