New Delhi: The Narendra Modi government has increased the gratuity limit from Rs 10 lakh to Rs 20 lakh following the passage of a Bill to that effect last month in Parliament. The Union government issued a notification the on Wednesday under the Payment of Gratuity Act, 1972.
The government has further issued a notification on the same day wherein it has increased the maximum period of maternity leave in case of women employees to be counted as a continuous service from 12 weeks to 26 weeks under the Payment of Gratuity Act, 1972.
The Ministry of Labour & Employment had received representations from various stakeholders. The ministry had organised tripartite consultations on 23 February 2017 with all stakeholders including representatives of employers and employees who supported the proposal.
The provision contained in the amended Payment of Gratuity Act, 1972, has been implemented with effect from 29 March.
Santosh Kumar Gangwar, Union Minister of State (I/C) for Labour and Employment, gave this information in a written reply to a question in Rajya Sabha on Wednesday.
Until now, formal sector workers with five or more years of service were eligible for Rs 10 lakh tax-free gratuity after leaving the job or at the time of superannuation.
A source in the government said, “The government wants to provide tax-free gratuity of Rs 20 lakh to organised sector workers at par with the Central government.”
Who will benefit from the enhanced gratuity limit
The maximum gratuity amount that is tax-exempt applies to a person’s entire career. During the entire working life of an employee, the tax-exempted gratuity amount he or she could claim could not earlier exceed Rs 10 lakh in total from one or more employers.
The employers could pay more than what the gratuity formula said if they felt so. The Payment of Gratuity Act, 1972, did not prevent them from doing so. The Act only prescribed the minimum limit exempted from tax.
But to enter the new slab of beneficiaries, an employee should be earning a basic salary of more than Rs 70,000 a month at present. The amendment will also help those who have years to go for retirement or those who just started working.