Good News!!! 20 lakh is the new Ceiling On Tax-Free Gratuity

On 22nd March 2018 Parliament passed “The Payment of Gratuity (Amendment) Bill 2017” which was passed by Lok Sabha 15th March 2018.

So what is “The Payment of Gratuity (Amendment) Bill 2017”?

  • As per “The Payment of Gratuity Act, 1972” which was passed in the year 2010, the ceiling of gratuity to employees was Ten Lakhs. With this new bill, the words “Ten Lakh Rupees” is being substitute with the words “such amount as may be notified by the Central Government from time to time”. The explanation given for such change is, considering the inflation and wage increase even in case of employees engaged in private and public sector, the entitlement of gratuity is also required to be revised for employees who are covered under the Act. Hence Central Government can revise the limit time to time keeping in view the increase in wage and inflation and future Pay Commissions.
  • After the implementation of the 7th Pay Commission, the ceiling of gratuity amount for central government employees was doubled to 20 lakh. Hence with the new bill, government will be able to enhance the ceiling of tax free gratuity to Rs. 20 lakh for the employees falling under the Payment of Gratuity Act.
  • The maximum maternity leave under the Maternity Benefit Act, 1961 has been enhanced from Twelve Weeks to Twenty-Six weeks by the Maternity Benefit (Amendment) Act, 2017. Hence the present bill is to remove the reference of 12 weeks and empowers the government to notify the maximum maternity leave.

Who are eligible for Gratuity?

The Payment of Gratuity Act, 1972 (the Act) was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments who have rendered a minimum five years of continuous service with the establishment employing ten or more persons.

How gratuity is calculated?

The calculation of gratuity amount is based on a formula, which is fifteen days of wages for each year of completed service, subject to a ceiling.

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