Government notifies doubling of limit of tax-free gratuity to Rs 20 lakh

New Delhi: The government has notified doubling of the limit of tax-free gratuity to Rs 20 lakh in private sector.

The notification follows changes in the Payment of Gratuity Act which had empowered the government to fix the ceiling of the retirement benefit through an executive order.

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

So far, 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.

Additionally, the Bill also envisages to amend the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from ‘twelve weeks’ to ‘such period as may be notified by the Central Government from time to time’.  This period has also been notified as twenty six weeks.

Here are the key highlights of  Payment of Gratuity Act

- The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons.  

- The main purpose for enacting this Act is to provide social security to workman after retirement, whether retirement is a result of superannuation, or physical disablement or impairment of vital part of the body.  

- Payment of Gratuity Act, 1972 is an important social security legislation to wage earning population in industries, factories and establishments.

- The present upper ceiling on gratuity amount under the Act is Rs 10 Lakh. The provisions for Central Government employees under Central Civil Services (Pension) Rules, 1972 with regard to gratuity are also similar.  

- Before implementation of 7th Central Pay Commission, the ceiling under CCS (Pension) Rules, 1972 was Rs 10 Lakh.  

- However, with implementation of 7th Central Pay Commission, in case of Government servants, the ceiling has been raised to Rs 20 Lakh.