Maximum Rs.20 lakh Tax-free gratuity to soon be a reality


On Thursday, the Rajya Sabha passed the 2018 amendment to the Payment of Gratuity Bill, 1972. This sets a new path for increasing the tax-free gratuity limit to Rs.20 lakh, double of the previous ceiling.

The Rajya Sabha passed the amended the Payment of Gratuity Bill 2018, increasing tax-free gratuity to Rs.20 lakh.

The approval for the amendment enables the government to increase the ceiling on tax-free gratuity. The amended bill also defines the period of maternity leave to be included in the calculation of continuous service. An amendment to the Maternity Benefit Act, 1961, made by the government last year, increased the maximum paid maternity leave to 26 weeks, from the earlier 12 weeks.

The next step entails the President of India signing the bill into a law. Once this is made official, the government can then raise the tax exemption limit from Rs.10 lakh to Rs.20 lakh on gratuity for which public sector and private sector employees are eligible for.

The decision was made in light of the increasing inflation and rise in wages in the private sector. The statement mentioned that post the enactment of the Payment of Gratuity Act, 1972, the power to notify the limit of gratuity is delegated to the central government. The ceiling limit can be revised as seen fit from time to time bearing in mind the inflation rates, future pay commissions and increase in wages.

Gratuity is paid to eligible employees as per the 7th Pay Commission recommendations. Any employee who has completed five years of continuous service in an establishment that employs 10 or more people is eligible to receive gratuity. Subject to the limit of gratuity, wages for 15 days is granted for every year of service.

The Payment of Gratuity Bill ensures that harmony is maintained between employees belonging to the public sector and the private sector. All employees will be entitled to receive the same limit of tax-free gratuity whether they belong to the government sector or work in autonomous organisations.


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