Tax ceiling for gratuity increased to Rs. 20 lakh

Krunali Shah


Tax ceiling for gratuity increased to Rs. 20 lakh

22 Mar 2018: Tax ceiling for gratuity increased to Rs. 20 lakh

The Rajya Sabha today passed the Payment of Gratuity (Amendment) Bill without discussion.

This key bill increases the ceiling of tax-free gratuity amount from Rs. 10L to Rs. 20L.

It also allows government to fix the period of maternity leave for female employees in continuous service.

Further, it allows government to change these parameters through an executive order, without amending the law.

Here's more.

About: What is the Payment of Gratuity Act?

Gratuity refers to the monetary benefit that an employer pays its employees at retirement. Unlike PF, employees make no contribution.

Earlier, there was no law for this purpose.

But, in 1972, the government enacted the Payment of Gratuity Act. Thus, an establishment with 10 or more people was supposed to pay its employees gratuity when they quit, provided they completed at least five years.

Fact: Now, what has the government proposed?

The maximum gratuity amount that is tax exempt was Rs. 10L. So, though employer can pay its employees more than the "gratuity formula" says, the Act prescribes the minimum limit which is exempted from tax. Now, the amended bill increases this tax-ceiling to Rs. 20L.

Benefits: How will this amendment benefit you?

This proposed increase in gratuity ceiling will immediately benefit those with high salaries. But, in case you have just started working and there are years to go for your retirement, this increase will benefit you as well.

With this move, formal sector employees will be at par with central government employees, whose ceiling was increased with the seventh Central Pay Commission's implementation.

Fact: How will it benefit new mothers?

Apart from this, this amended bill allows government to fix the maternity leave for female employees, provided they are serving continuously, from the existing 12 weeks. This amendment comes amid the Maternity Benefit (Amendment) Act, 2017 increasing the maximum maternity leave period to 26 weeks.