Centre decides to raise gratuity tax cap to Rs 20 lakh

New Delhi, September 12

The Centre today approved an amendment Bill to double tax-free gratuity for formal sector employees to Rs 20 lakh.

“The Union Cabinet chaired by Prime Minister Narendra Modi has given its approval to introduction of the Payment of Gratuity (Amendment) Bill, 2017, in Parliament,” an official statement said.

The amendment will put the maximum limit of gratuity for employees of the private sector, public undertakings and autonomous organisations under the government who are not covered under Central Civil Services (Pension) Rules, on a par with Union Government employees at Rs 20 lakh.

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

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

Considering inflation and wage increase even in case of employees engaged in the private sector, the government is of the view that the entitlement of gratuity should be revised for staff covered under the Payment of Gratuity Act, 1972. Accordingly, it initiated the process for amendment to the Gratuity Act that applies to establishments employing 10 or more persons.

The main purpose for enacting this Act is to provide social security to workmen after retirement, whether due to superannuation, physical disablement or impairment of vital body parts.

Therefore, the Gratuity Act serves as a key social-security legislation to wage-earners in industries, factories and establishments. — PTI