Tax-free gratuity ceiling in private sector to go up to Rs10 lakh

The union cabinet yesterday decided to raise the ceiling of gratuity payable to employees in the private sector from Rs3.5 lakh to Rs10 lakh.

The proposal was cleared at the cabinet meeting presided by Prime Minister Manmohan Singh. With this decision, private sector employees have been brought on a par with the central government employees who were granted a hike in tax-free gratuity by the sixth pay commission. The centre is likely to table a bill amending the gratuity law during the current budget session of parliament.

As a first step, the amendment of the payment of gratuity act will officially permit companies to pay more, although many are already doing so. The next step will be to amend the income tax act so that the exemption limit can be raised from to Rs10 lakh.

''The cabinet has approved the bill seeking to amend the Payment of Gratuity Act which will be introduced in the current session of Parliament,'' union labour minister Mallikarjun Kharge said.

''The proposed amendment will increase the maximum gratuity from Rs3.5 lakh to Rs10 lakh. The provision of the income tax act will be suitably amended for the benefit to continue,'' he added.

The minister did not say when the income tax act would be amended. If the finance minister is willing, it can be done in this session itself.