In recent developments, the Indian government has addressed ambiguities surrounding gratuity payments, particularly concerning employees potentially receiving multiple gratuities. The central issue revolves around whether an employee can receive gratuity payments from different employers or for different periods of service. Recent clarifications and amendments to the Central Civil Services (Payment of Gratuity under NPS) Rules, 2025, shed light on this matter.

The Department of Pension and Pensioners’ Welfare (DoPPW) issued an Office Memorandum on December 26, 2025, stating that gratuity is considered a one-time terminal benefit. This implies that government employees covered under the National Pension System (NPS) are generally not entitled to a second gratuity upon re-employment if they have already received it from their first retirement.

However, there are exceptions to this rule. Employees initially appointed in a Public Sector Undertaking (PSU) or autonomous body, who later joined government service with proper permission, may receive gratuity for their service in the government, in addition to what they received from the PSU. In such instances, the total gratuity amount is capped at what would have been admissible if the employee had served continuously under the Central Government until retirement.

The memorandum also clarifies the situation for ex-servicemen re-employed in civil posts, stating that gratuity for civil service rendered after re-employment will not be restricted based on the gratuity already received for military service.

These clarifications were made in consultation with the Department of Expenditure and the Comptroller and Auditor General of India, ensuring strict implementation of the revised provisions across ministries and departments.

Furthermore, the Indian government has consolidated 29 existing labor laws into four simplified codes, effective from November 21, 2025. One significant change is the reduced eligibility period for gratuity, lowered to one year of service, benefiting a large section of workers. The tax-free gratuity limit has also been doubled to ₹20 lakh.

This change primarily benefits contract employees, fixed-term employees and project-based workers. Completing at least one year of continuous service under a valid employment contract now makes them eligible for gratuity. Continuous service includes paid leave, sick leave, maternity leave, and authorized absences. The new rules define that working for at least 240 days in a year in most establishments, or 190 days in certain sectors, qualifies as continuous service, strengthening gratuity eligibility even under short contracts.

It's important to note that while the eligibility period has been reduced for fixed-term employees, the five-year continuous service rule remains for regular, permanent employees. The gratuity calculation formula remains the same:

Gratuity = (15/26) x Last Drawn Salary x Years of Service.

For example, an employee with a final basic salary of Rs 50,000 who resigns after one year will receive approximately Rs 28,800.

These changes aim to modernize labor markets and provide stronger protection for workers, while also increasing compliance responsibilities for employers. Employers are advised to update their HR policies and employment contracts to reflect these changes.