A proposal to significantly raise the gratuity limit from the current Rs 25 lakh to Rs 75 lakh is gaining attention as employee unions and pensioner organisations argue that the existing gratuity framework needs to be urgently recalibrated to align with current economic realities, inflationary pressures and the evolving financial needs of retired public servants.
The demand comes as stakeholder submissions on salary revision, pension and retirement benefits have now been placed before the 8th Pay Commission to examine. The 8th Pay Commission memorandum submission deadline has ended. The government had invited representatives from all stakeholders to post their suggestions related to the 8th Pay Commission on the official 8th Central Pay Commission website. Now that the deadline for submitting the memorandum to the 8th CPC has ended, it is time for the pay panel to review suggestions from various organisations representing employees and pensioners.
The current gratuity framework
Gratuity is a lump sum payment made to employees as a reward for long and continuous service. The standard formula for calculating gratuity is Gratuity = (last drawn basic salary + Dearness Allowance) × 15 × number of years of service ÷ 26.
Under the existing rules, government employees become eligible for gratuity after completing a minimum of five years of qualifying service. Also, there are provisions for payment to legal heirs in the event of an employee’s death while in service.
The current gratuity framework is:
— Gratuity is calculated based on the employee’s basic pay and Dearness Allowance (DA).
— The overall maximum gratuity payable is capped at Rs 25 lakh.
— The maximum gratuity is limited to 16.5 times the employee’s emoluments.
Why is the demand for increasing gratuity?
Employee unions are of the view that the existing framework of gratuity has historically provided a reliable safety net but that fixed ceilings and conservative calculation methods are unable to keep pace with rising living costs and increasing healthcare expenses in retirement. Therefore, the stakeholders have proposed to increase the gratuity limit to align with current economic realities, inflationary pressures and the evolving financial needs of retired public servants. The employee unions believe that the increase in gratuity limit will provide meaningful, inflation-adjusted compensation that adequately recognizes the decades of public service of the employees and pensioners.
NC-JCM seeks Rs 75 lakh ceiling
The staff side of the National Council-Joint Consultative Machinery (NC-JCM) has proposed a comprehensive reform in the gratuity scheme. It has proposed:
— Tripling the gratuity ceiling from Rs 25 lakh to Rs 75 lakh.
— Using a 25-working-day month instead of a 30-calendar-day month.
— Calculating gratuity at one-half month’s basic pay plus DA for every completed six-month period of service.
— Completely eliminate the current 16.5 times emoluments cap.
IRTSA proposes Rs 50 lakh limit
The Indian Railway Technical Supervisors Association (IRTSA) has proposed the following changes to gratuity:
— Increasing the gratuity ceiling to Rs 50 lakh.
— Revising the accrual rate to one-third of basic pay plus DA for each six-month service period.
— Allowing employees with 33 years or more of service to receive gratuity up to 32 times their basic pay and DA.
RSCWS seeks periodic revision of gratuity ceiling
The Retired and Senior Citizens Welfare Society (RSCWS) has adopted a more systemic approach instead of concentrating only on immediate numerical increases. It has emphasized the following:
— Establishing a mechanism for periodic revision of the gratuity ceiling.
— Ensuring parity among retirees covered under the Old Pension Scheme (OPS), National Pension System (NPS) and Unified Pension Scheme (UPS).
— Guaranteeing timely retirement benefit payments across all categories of retirees.
How will employees be benefited if gratuity limit is increased?
If the proposed framework is implemented and the gratuity ceiling is increased to Rs 50 or Rs 75 lakh, there will be a proper addressal of the concerns of retirees facing longer life expectancy, rising healthcare costs and increased post-retirement financial responsibilities. An increase in gratuity will significantly redefine retirement security for millions of government employees and their families and ensure greater financial stability during the later years of their lives.
The 8th Pay Commission expected to review the proposals made by various stakeholders and use the relevant suggestions to frame its final recommendations. The report is expected to be submitted approximately 18 months after the Commission’s constitution.
