Rs 20 lakh tax-free cap on gratuity

There is good news for millions of employees in the organised sector: the tax-free gratuity limit is likely to go up from existing Rs 10 lakh to Rs 20 lakh. Parliament has cleared the Payment of Gratuity (Amendment) Bill which empowers the government to remove the existing Rs 10 lakh ceiling on gratuity, effectively paving way for an increase in the gratuity cap.

The move will benefit millions of employees in the public and private sector companies. Employees are paid gratuity if they have provided at least five years of continuous service to a company at the time of termination.

The legislation was passed by the Lok Sabha last week and approved by the Rajya Sabha on Thursday without discussion. It will become law after the president's accent. The amount of gratuity depends on two factors -- the

basic in the last salary and the number of years of service in the organization. The rules on of gratuity apply to companies that have 10 or more workers. The establishment may be a factory, a mine, an oil field, plantation, port, railways or a shop.

The amendment to the payment of gratuity law comes in the backdrop of Maternity Benefit (Amendment) Act, 2017, which has enhanced the maximum maternity leave period to 26 weeks. So, it means the maternity leave of 26 weeks will be considered as continuation of service for the purpose of calculating the amount of gratuity.