Tax-free gratuity limit doubled up to 20 L

​New Delhi: Parliament on Thursday passed Payment of Gratuity (Amendment) Bill 2017 paving the way for doubling the limit of tax-free gratuity to Rs 20 lakh and empowering the government to fix the ceiling of the retirement benefit through an executive order.

The Rajya Sabha passed the bill, which was approved by the Lok Sabha last week, on March 15. Besides enabling the Central government to fix the ceiling of tax-free gratuity, the bill will also empower it to fix the period of maternity leave through executive order. It also notifies the period of maternity leave as part of continuous service and proposes to empower the Central government to notify the gratuity ceiling from time to time without amending the law. 

Rajya Sabha Chairman M Venkaiah Naidu said in the Upper House that he had met leaders of various parties in the morning and it was decided that the House would take up the crucial Payment of Gratuity (Amendment) Bill as it was of importance to the employees. When Labour Minister Santosh Kumar Gangwar then moved the Bill for consideration and passage, it was passed by a voice-vote without a debate.

The Labour ministry later said in a statement that the Bill also envisages amending the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from "twelve weeks" to such period as may be notified by the Central government from time to time.
Prime Minister Narendra Modi tweeted: "A significant pro-people measure passed in Parliament. Will benefit lakhs of Indians." 

After implementation of the 7th Central Pay Commission, the ceiling of tax-free gratuity amount for central government employees was increased from Rs 10 lakh to Rs 20 lakh. The unions have been demanding for inclusion of the change in the Act. At present, formal sector workers with five or more years of service are eligible for Rs 10 lakh tax-free gratuity after leaving job or at time of superannuation. 

A senior government official had earlier said that the government wants to provide tax-free gratuity of Rs 20 lakh to organised sector workers on par with the Central government. The Payment of Gratuity Act, 1972, was enacted to provide for gratuity payment to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments.  

The law is applicable to employees, who have completed at least five years of continuous service in an establishment that has 10 or more persons. The amendment will also allow the central government to notify the maternity leave period for “female employees as deemed to be in continuous service in place of existing twelve weeks”.