By Central 8th Pay Commission Admin
Retirement Benefits Update: 8th Pay Commission Likely to Double Gratuity and Leave Encashment Caps
Updated: Dec 31, 2025, 22:30 IST
Currently, the maximum tax-free Gratuity is capped at ₹20 Lakh (recently revised from ₹25 Lakh in certain cases due to DA reaching 50%). However, with the massive jump in basic pay expected from January 1, 2026, this cap has become a bottleneck for senior officials who have served 30+ years.
The ₹40 Lakh Gratuity Demand
Employee unions have presented a strong case to the Finance Ministry, arguing that the Gratuity cap should be doubled to ₹40 Lakh under the 8th Pay Commission. This demand is based on the logic that if the minimum pay is doubling, the retirement safety net must also expand proportionally to combat inflation.
Leave Encashment: Beyond the 300-Day Barrier
Another “hot” demand reaching the pay panel is the revision of Leave Encashment rules. While employees can currently encash up to 300 days of Earned Leave (EL) at the time of retirement, there is a push to increase this to 450 days.
| Benefit | 7th CPC Limit | Proposed 8th CPC Limit |
|---|---|---|
| Death-cum-Retirement Gratuity | ₹20 – 25 Lakh | ₹40 Lakh |
| Leave Encashment Days | 300 Days | 450 Days |
| Tax Exemption Status | Partial | Full Exemption up to New Cap |
The ‘Retirement Timing’ Dilemma
We are receiving many queries from employees planning to retire in early 2026. The advice from experts is clear: If you retire after January 1, 2026, you will likely be eligible for the 8th Pay Commission benefits retrospectively. This means even if the Gratuity hike is announced in 2027, you will receive the difference as arrears provided your retirement date falls within the 8th CPC window.