8th Pay Commission: What is gratuity, and how is it calculated based on last drawn salary? Expert explains
The 8th Pay Commission is currently in its consultation stage. The three-member panel headed by Justice Ranjana Prakash Desai concluded its Bengaluru meetings on 8 October and will hold its next round of consultations in Mumbai on 22-23 October.
As employee unions continue to press for changes to the pay structure, gratuity and retirement benefits remain a key concern for central government employees nearing retirement.
Over the last few months, prominent unions have raised several demands before the panel on the fitment factor, revised basic salaries, allowances, gratuity limits and pension reforms. These include the National Council–Joint Consultative Machinery (NC-JCM) and the All India Defence Employees Federation (AIDEF). Proposals for a higher gratuity ceiling and revised retirement benefits are among those under discussion.
The unions’ core aim is to improve the livelihoods of serving employees and pensioners, and to secure a meaningful review of salaries after a decade. However, the final outcome will depend on the commission’s recommendations and the government’s decision.
What is gratuity, and how is it linked to the last drawn salary?
Gratuity is a lump-sum retirement benefit paid to eligible employees in recognition of their service. For central government employees, it is linked to emoluments and qualifying service. Under the Central Civil Services (Pension) Rules, 2021, retirement gratuity is generally calculated at one-fourth of emoluments for every completed six-month period of qualifying service, subject to the prescribed maximum.
Adhil Shetty, CEO of BankBazaar, explains, “Gratuity is a one-time lump sum paid to government employees at retirement in recognition of their years of service. It is calculated on the last drawn basic pay plus dearness allowance. For every six months of qualifying service, employees receive a quarter of this amount, subject to a ceiling of ₹25 lakh. Since gratuity is directly tied to basic pay, a higher revised basic under the 8th Pay Commission could raise payouts for employees retiring after its implementation.”
What can central government employees and pensioners expect?
The central government constituted the 8th Pay Commission on 3 November 2025. It is a temporary three-member body headed by Justice Ranjana Prakash Desai, and will complete one year in a few weeks. Under its Terms of Reference (ToR), it has an 18-month mandate, and its report is expected by May-June 2027.
Until the final report is submitted and the government announces its decision, all demands on gratuity, allowances and pensions remain proposals. Serving employees and pensioners should wait for official recommendations and implementation details before assuming any increase in retirement benefits.