Tax-free limit for gratuity hiked to Rs 20 lakh

New Delhi: Formal sector workers may soon be eligible for up to Rs 20 lakh tax-free gratuity as central trade unions have agreed on the proposal in a tripartite consultation with the Labour Ministry. 

The central trade unions have agreed on doubling gratuity amount ceiling as an interim measure in a tripartite meeting on the proposed amendment to Payment of Gratuity Act conducted today by the Labour Ministry. 

The unions demanded the removal of conditions asking to have at least 10 employees in an establishment and minimum five years of service for payment of gratuity. 

"While accepting the maximum payment limit of Rs 20 lakh as an interim measure, the unions demanded that the ceilings/ limit with respect to number of employees and years of service should be removed," the All India Trade Union Congress (AITUC) said in a statement. 

It said, "The central trade unions have been urging the government that the ceiling in the amount of gratuity should be removed." 

At present, as per the Payment of Gratuity Act, an employee is required to do minimum service of five years to become eligible for gratuity amount. Moreover, the Act applies to those establishments where the number of employees is not less than 10. 

The statement said the application of amended provision regarding maximum amount should be made effective from January 1, 2016 as done in the case of central government employees. 

Besides that rate of 15 days wages for each completed year of service be raised to 30 days wages, the unions demanded. 

They pointed out during the meeting that the proposed amendment is being brought to bring the maximum ceiling amount to Rs 20 lakh in line with recommendation of 7th Central Pay Commission as accepted by the government. 

The relevant amendment for central government employees was notified on July 25, 2016 and the enhanced amount ceiling was made effective from January 1, 2016. 

The unions are of the view that the delay of 8 months for employees covered under the Payment of Gratuity Act should not result in adversely affecting the interest of the concerned employees. 

The employers as well as state representatives also agreed to the proposal of raising the amount of gratuity to Rs 20 lakh, it said.