Parliament passes bill doubling ceiling of tax free gratuity to Rs 20 lakhs

The Indian Parliament on March 22, 2018 passed the Payment of Gratuity (Amendment) Bill that will empower the government to fix the amount of tax-free gratuity and the period of maternity leave with an executive order.

The bill was passed by the upper house of the Parliament, Rajya Sabha, which has failed to function properly since the past two weeks due to protests by various parties. The House passed the key bill without discussion. 

Rajya Sabha on March 22 and Lok Sabha on March 15, 2018

Enhance the ceiling of tax-free gratuity to 20 lakh rupees

Main Features

The amendment bill empowers the government to fix the amount of tax-free gratuity and the period of maternity leave with an executive order. 

The legislation will enable the government to enhance the ceiling of tax-free gratuity to 20 lakh rupees from the existing 10 lakh rupees for employees falling under the Payment of Gratuity Act. 

It allows the government to fix the period of maternity leave for female employees as deemed to be in continuous service in place of the existing 12 weeks.

After enactment of the Act, the power to notify the ceiling of the amount of gratuity under the Payment of Gratuity Act, 1972 shall stand delegated to the Central Government so that the limit can be revised from time to time keeping in view the increase in wage and inflation and future pay commissions.  

Background and Act

The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more persons.

The main purpose for enacting this Act is to provide social security to workman after retirement, whether retirement is a result of superannuation, or physical disablement or impairment of vital part of the body.

Therefore, the Payment of Gratuity Act, 1972 is an important social security legislation to wage earning population in industries, factories and establishments. 

The present upper ceiling on gratuity amount under the Act is Rs. 10 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 Rs. 10 Lakh. However, with implementation of 7th Central Pay Commission, in case of Government servants, the ceiling has been raised to Rs. 20 Lakhs. 

The amendment to the payment of gratuity law comes in the backdrop of Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks