The Centre has issued consolidated guidelines on the payment of gratuity to employees of Central Public Sector Enterprises (CPSEs), bringing clarity on eligibility, timelines, and the applicability of the Rs 20 lakh gratuity ceiling.
The guidelines were issued by the Ministry of Finance’s Department of Public Enterprises (DPE) through an Office Memorandum dated December 9, 2025. They consolidate earlier instructions and clarifications issued in 2017 and 2018, following amendments to the Payment of Gratuity Act, 1972.
Gratuity payment guidelines: What the Office Memorandum says
In the Office Memorandum, the DPE said that it had earlier issued multiple guidelines and clarifications on gratuity payment to CPSE employees and has now consolidated them “in the following paragraphs” to avoid ambiguity and ensure uniform implementation across CPSEs.
The consolidated guidelines apply to all Central Public Sector Enterprises and cover both executives and non-executive employees.
Change in gratuity ceiling under the law
The clarification follows amendments made to the Payment of Gratuity Act, 1972 through the Payment of Gratuity (Amendment) Act, 2018.
As per the amendment, Section 4(3) of the Act was modified to replace the fixed gratuity ceiling of ₹10 lakh with “such amount as may be notified by the Central Government from time to time”.
Subsequently, the Ministry of Labour and Employment notified that the amended provisions came into force from March 29, 2018. It also specified that “the amount of gratuity payable to an employee under the Act shall not exceed twenty lakh rupees”.
What applies before March 29, 2018
The DPE clarified that gratuity payment for the period between January 1, 2017 and March 28, 2018 is linked to the financial position of individual CPSEs.
“The payment of Gratuity under DPE guidelines dated 03.08.2017 is subject to affordability of the CPSEs concerned,” the memorandum states. This applies to executives and non-unionised supervisors on the IDA pay pattern whose pay was revised with effect from January 1, 2017.
In simple terms, CPSEs were allowed to decide gratuity payouts for this period based on their ability to bear the financial burden.
Mandatory Rs 20 lakh gratuity after March 29, 2018
For gratuity payable on or after March 29, 2018, the guidelines are clear and binding.
“On and after 29.03.2018, the payment of gratuity of ₹20 lakhs is mandatory for all the CPSEs irrespective of their affordability,” the Office Memorandum states.
This provision applies to all employees of all CPSEs, as it flows directly from the statutory amendment to the Payment of Gratuity Act, 1972.
7th Pay Commission benefit not applicable to CPSE staff
The DPE has also clarified a key point that often leads to confusion among CPSE employees.
The government’s decision, based on the recommendations of the 7th Central Pay Commission, to raise the gratuity ceiling from ₹10 lakh to Rs 20 lakh with effect from January 1, 2016 “is not applicable to the employees of CPSEs”.
This means CPSE employees cannot claim the enhanced ceiling from January 1, 2016, unlike central government employees covered under the 7th Pay Commission.
What ministries and CPSEs must do now
The DPE has asked all administrative ministries and departments to ensure compliance with the consolidated guidelines.
“All administrative Ministries / Departments are requested to take necessary action and also bring the contents of this Office Memorandum to the notice of CPSEs under their respective administrative jurisdiction,” the memorandum said.