Organised sector workers will soon be eligible for up to Rs 20 lakh tax-free gratuity. Government is introducing amendments to the Payment of Gratuity (Amendment) Bill 2017 in the upcoming monsoon session of Parliament to double the tax-free gratuity ceiling to Rs 20 lakh.
The bill allows the central government to change the ceiling for tax-free gratuity after factoring in rise in income levels by an executive order bypassing Parliament route to amend the law.
“This is on our agenda. It may come in this session (monsoon). It will soon go to the Cabinet for approval,” Labour Minister Bandaru Dattatreya said.
After the amendment, formal sector workers will be eligible for up to Rs 20 lakh tax-free gratuity.
Government is introducing the bill after central trade unions agreed on the proposal in a tripartite consultation with the Labour Ministry held in February.
However, the trade unions had demanded the removal of conditions asking to have at least 10 employees in an establishment and minimum five years of service for payment of gratuity.
At present, as per the Payment of Gratuity Act, an employee is required to do minimum service of five years to become eligible for gratuity. Moreover, the Act applies to those establishments where the number of employees is not less than 10.
Trade unions had demanded that the amended provision regarding maximum amount should be made effective from January 1, 2016, as done in the case of central government employees.
Besides, they also demanded that rate of 15 days’ wages for each completed year of service be raised to 30 days’ wages.
The proposed amendment to the Payment of Gratuity Act, as circulated by the government, only deals with enhancing the ceiling of maximum amount under Section 4(3) of the Act from Rs 10 lakh to Rs 20 lakh.
The proposed amendment is being brought to take the maximum ceiling amount to Rs 20 lakh in line with the 7th Central Pay Commission’s recommendations as accepted by the government.
The relevant amendment for central government employees was notified on July 25, 2016 and the enhanced amount ceiling was made effective from January 1, 2016.
The unions were of the view that the delay of eight months for employees covered under the Payment of Gratuity Act should not result in adversely affecting the interest of the concerned employees.
The employers as well as state representatives had also agreed to the proposal of raising the amount of gratuity to Rs 20 lakh in the tripartite meeting.