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Central Government pension rules explained

How pension, Dearness Relief, commutation, family pension and gratuity work for Central Government employees, and what the 8th Pay Commission could mean for pensioners.

Last updated October 2026 · by NE Media

1. Basic pension

• Pension = 50% of your last basic pay or 50% of the average basic pay of your last 10 months, whichever is more beneficial to you.
• You need at least 10 years of qualifying service. Since 2006 the full 50% no longer depends on having 33 years of service.
• Under the 7th CPC, the minimum pension is ₹9,000 and the maximum ₹1,25,000 a month (half of the highest pay, ₹2,50,000).

Example: last basic pay ₹56,100 → basic pension ₹28,050 a month.

2. Dearness Relief (DR)

Pensioners get Dearness Relief at the same rate as serving employees' DA: 60% from 1 January 2026. DR is paid on the full basic pension, including any additional pension, even if you have commuted part of it. With the example above, DR is ₹16,830, so gross pension is ₹44,880.

3. Commutation (lump sum in exchange for part of the pension)

• You can commute (sell) up to 40% of your basic pension for a one-time lump sum.
• Lump sum = commuted pension × 12 × commutation factor. The factor depends on your age on your next birthday; it is 8.194 for age 61, the usual case for retirement at 60.
• The commuted amount is deducted from your pension and restored after 15 years.
• Example: 40% of ₹28,050 = ₹11,220; lump sum = ₹11,220 × 12 × 8.194 ≈ ₹11.03 lakh. Pension in hand drops by ₹11,220 a month for 15 years.

4. Additional pension for older pensioners

5. Family pension

• The normal rate is 30% of the employee's last basic pay, with a minimum of ₹9,000 a month, plus DR.
• The enhanced rate is 50% of last basic pay (but not more than the pension). It is paid for 10 years if the employee dies in service, or, if a pensioner dies, for 7 years or until the date they would have turned 67, whichever is earlier. After that the normal rate applies.
• Family pension goes to the spouse first, and in certain cases to children or dependent parents, as set out in the rules.

6. Gratuity and leave encashment

• Retirement gratuity = ¼ of (basic pay + DA) for each completed six months of service, up to 16.5 times (basic + DA), with at least 5 years of service.
• The ceiling is ₹25 lakh from 1 January 2024.
• Leave encashment: up to 300 days of earned leave, at (basic + DA) ÷ 30 per day.
• Both apply to NPS and UPS employees too. Work them out with the gratuity calculator.

7. Tax on pension and retirement benefits

• Monthly pension is taxed as salary, and the standard deduction applies.
• For Government employees, the commuted lump sum, gratuity and leave encashment at retirement are fully exempt from income tax.
• Family pension is taxed as "income from other sources", with a deduction of one-third or ₹25,000 (whichever is less) in the new regime, and ₹15,000 in the old regime.

8. What the 8th Pay Commission means for pensioners

• The 8th CPC's terms of reference include reviewing pensions for employees not on NPS. Recommendations are normally expected to take effect from 1 January 2026.
• When the 7th CPC came in, pensions were revised by multiplying basic pension by the same fitment factor, 2.57, and DR restarted from 0%. A similar method is likely, but nothing has been announced for the 8th CPC.
• The commuted part of pension is not revised; the deduction stays at the original amount.
• Try different fitment factors in the pension calculator (choose "8th CPC (estimate)").

Sources

Pension rules are set out in the Central Civil Services (Pension) Rules, 2021 and orders of the Department of Pension and Pensioners' Welfare. Pension revision under the 7th CPC followed the Cabinet decisions of 29 June 2016 (PDF); the 8th CPC's remit is in its terms of reference. Rules have many exceptions; your Pension Payment Order and your office are the final word.