Before we understand NPS gratuity, it is important to know what a gratuity is and who is eligible. Gratuity is a monetary benefit an employee receives after completing five years or more in an organisation on retirement or leaving the company as provisioned under the Payment of Gratuity Act, 1972. A gratuity is also paid in case of a terminal or a life-altering disease, and accident, even if the employee has not completed the required period. The gratuity amount depends on the employee’s last drawn salary and years of service to the company.

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So, are you eligible for gratuity? Let’s find out more.

Eligibility Criteria For Gratuity

Any corporate or government employee, whether working in an oilfield, a government department, factory, mine, plantation, port, etc., can be eligible for gratuity benefits under the Payment of Gratuity Act, 1972. To be eligible for a gratuity payment, the employee must have completed at least five years of service in an organisation, is eligible for retirement or has already retired from work. However, there is a rider. The employee must have served the required five years without a break in the company to be eligible for gratuity payment.

The five-year rule for gratuity payment can only be waived under exceptional circumstances. For instance, if an employee meets with a major accident or suffers from a terminal disease due to which he needs money, the person will be considered for gratuity. If the person dies suddenly, the gratuity amount is paid to the nominee that the employee selected at the time of hiring.

How Is NPS Gratuity Calculated?

The National Pension System (NPS) offers government employees a one-time lump sum benefit in the form of gratuity at retirement. The gratuity amount is considered by taking a quarter of the employee’s basic monthly salary plus the dearness allowance (DA) for each block of six months of qualifying service. For instance, if the employee has worked for 33 years or more, the gratuity amount would be around 16 times the quarter of the basic pay and DA, up to a ceiling of Rs 20 lakh. However, this limit increased by 25 per cent to Rs 25 lakh from January 1, 2024.

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Furthermore, death gratuity rates depend on the length of qualifying service. If the service period is less than a year, the employee receives two times the quarter of the basic pay plus dearness allowance for each block of six months of qualifying service. Likewise, it is calculated for those who were in service for over a year but less than six years, 11 years but less than 20 years, and 20 years or more based on the blocks of six months of qualifying service.