Tax free gratuity upto Rs 20 lakh for private sector employees

NEW DELHI March 23, 2018: The Parliament on Thursday passed the Payment of Gratuity (Amendment) Bill 2017 that will pave the way for doubling the limit of tax free gratuity to Rs 20 lakh for private sector employees, said media reports.

The Rajya Sabha passed the bill, which was approved by the Lok Sabha last week, on March 15.

Besides enabling the central government to fix the ceiling of tax free gratuity, the bill will also empower it to fix the period of maternity leave through executive order, said the reports. It also notifies the period of maternity leave as part of continuous service and proposes to empower the central government to notify the gratuity ceiling from time to time without amending the law.

After implementation of the 7th Central Pay Commission, the ceiling of tax free gratuity amount for central government employees was increased from Rs 10 lakh to Rs 20 lakh. The unions had been demanding for inclusion of the change in the Act, said the media reports.

At present, formal sector workers with five or more years of service are eligible for Rs 10 lakh tax-free gratuity after leaving job or at time of superannuation.

A senior government official had earlier said that the government wants to provide tax-free gratuity of Rs 20 lakh to organised sector workers at par with the central government.

The Payment of Gratuity Act, 1972, was enacted to provide for gratuity payment to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments, said the reports.

The law is applicable to employees, who have completed at least five years of continuous service in an establishment that has 10 or more persons.

The amendment will also allow the central government to notify the maternity leave period for “female employees as deemed to be in continuous service in place of existing twelve weeks”. The proposal comes against the backdrop of the Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks.

Prime Minister Narendra Modi tweeted: “A significant pro-people measure passed in Parliament. Will benefit lakhs of Indians.”

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