Cabinet clears bill to double tax-exempt gratuity to Rs20 lakh

The central government has approved a proposal for introduction of an amendment to the payment of gratuity rules in Parliament, which provides for doubling the tax exemption limit on gratuity payments to Rs20 lakh from the present Rs10 lakh.

The union cabinet chaired by Prime Minister Narendra Modi on Tuesday approved the introduction of the Payment of Gratuity (Amendment) Bill, 2017 in Parliament.

The Amendment will increase the maximum limit of gratuity of employees, in the private sector and in public sector undertakings, including autonomous organisations under government, that are not covered under CCS (Pension) Rules, at par with central government employees.

The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons. The enactment of the amendment bill will help enhance social security to workmen after retirement – irrespective of whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body.

The present upper ceiling on gratuity amount under the Act is Rs10 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 Rs10 lakh. However, with implementation of 7th Central Pay Commission, in case of government servants, the ceiling now is Rs20 lakh effective from 1.1.2016.

Considering the impact of inflation and wage increase even in case of employees engaged in private sector, the government decided to revise the entitlement of gratuity for employees who are covered under the Payment of Gratuity Act, 1972.