Gratuity limit doubles for private sector to ~20 lakh

Hikes DA to 5% for 11-mn employees, pensioners

The government has decided to double the maximum limit of tax-free gratuity payable to an employee to ~20 lakh. The Cabinet on Tuesday approved the introduction of the Payment of Gratuity (Amendment) Bill, 2017, in Parliament.

In a move that will bring a cheer to private and public sector employees in the country, the government has decided to double the upper limit of tax-free gratuity payable to an employee to ~20 lakh.

The Cabinet on Tuesday approved the introduction of the Payment of Gratuity (Amendment) Bill, 2017, in Parliament.

It also increased dearness allowance and dearness relief by one percentage point to 5 per cent, benefiting five million employees and 6.1 million pensioners.

Apart from private sector employees, the amendment to the Gratuity Act, 1972, is also expected to increase the limit of gratuity of employees in public sector undertakings and autonomous government organisations not covered under CCS (Pension) Rules, and bring it at par with central government employees.

Under the Gratuity Act, payment is mandatory and gratuity will be payable to an employee on termination of employment after he or she has rendered continuous service for not less than five years. It may be paid earlier in cases of death or disablement. Before the implementation of the Seventh Central Pay Commission recommendations, the ceiling under CCS (Pension) Rules, 1972, was ~10 lakh. However, after its roll- out, the ceiling has been extended to ~20 lakh for government servants, effective January 1, 2016.

The government has decided to revise the entitlement of gratuity after considering inflation and wage increases in the private sector. However, legal and tax experts have suggested that firms may be hit by the decision to a significant degree.