Pension Rule Update: Central Govt Employees To Receive Notional Increment If Retire A Day Before Annual Pay Hike

SOURCE : NEW18 NEWS

Last Updated:May 21, 2025, 15:27 IST

The DoPT has allowed notional hike on July 1 or January 1 for staff retiring a day prior — on June 30 or December 31 — provided they have completed requisite qualifying service.

The Department of Personnel and Training (DoPT) has announced that Central government employees retiring just a day before their annual pay hike — on June 30 or December 31 — will now be granted a notional increment for the purpose of calculating their pension benefits.

As per Rule 10 of the Central Civil Services (Revised Pay) Rules, 2006, July 1 was fixed as the uniform date for annual increments. Later, the 2016 rules introduced two increment dates: January 1 and July 1 each year. However, employees retiring on June 30 or December 31 often missed out on their due increment by just one day, affecting their pension calculations.

The matter came to wider attention following a Madras High Court judgment in 2017, where a retiring employee was granted a notional increment for pension purposes. While the DoPT initially implemented the order only for that petitioner, similar cases soon piled up across tribunals and courts. In a significant ruling in 2023, the Supreme Court upheld the right of such employees to receive a notional increment, recognising their complete year of service with satisfactory performance. This decision was later extended to other similar cases in 2024, subject to certain conditions.

Now, in an Office Memorandum dated May 20, 2025, the DoPT has formally extended this benefit to all eligible central government employees. The memo states that, in consultation with the Department of Expenditure and the Department of Legal Affairs, it has been decided to allow notional increments on July 1 or January 1 for employees retiring a day prior — on June 30 or December 31 — provided they have completed the requisite qualifying service with good conduct.

“The matter has been examined in consultation with D/o Expenditure and D/o Legal Affairs. It is advised that… action may be taken to allow the increment on 1stJuly / 1st January to the Central Government employees who retired/are retiring a day before it became due i.e. on 30th June / 31st December and have rendered the requisite qualifying service as on the date of their superannuation with satisfactory work and good conduct for calculating the pension admissible to them,” the DoPT said in an Office Memorandum dated May 20, 2025.

“As specifically mentioned in the orders of the Hon’ble Supreme Court, grant of the notional increment on 1st January/ 1st July shall be reckoned only for the purpose of calculating the pension admissible and not for the purpose of calculation of other pensionary benefits,” it added.

Pension for Central Government employees in India is calculated primarily based on the last drawn basic pay and the length of qualifying service, as per the Central Civil Services (Pension) Rules, 2021 (which replaced the 1972 rules).

How Will It Impact Central Government Employees?

Importantly, this notional increment will be considered only for calculating the admissible pension and not for other pensionary benefits.

What is allowed?

The notional increment (a hypothetical raise granted even though the person retired a day before the increment date) will be included in the last drawn basic pay only for calculating the monthly pension.

For example: If an employee was earning Rs 79,000 on June 30 and was due for an increment of Rs 2,000 on July 1, they’ll now be treated as if their basic pay was Rs 81,000 only for the purpose of pension calculation.

What’s not allowed?

This notional increment won’t be considered for computing other retirement-related benefits, such as gratuity, leave encashment, commutation value of pension, encashment of earned leave or half pay leave, and group insurance scheme payments.

These will still be calculated based on the actual last drawn pay without the notional increment.

First Published:

May 21, 2025, 13:05 IST