Big Benefit For Employees: Tax-Free Gratuity Limit To Be Doubled to Rs 20 Lakh

The government has decided to raise the upper limit of tax-free gratuity payable to an employee from the existing Rs 10 lakh to Rs 20 lakh. The process has been set in motion by the Union Cabinet’s approval of the introduction of the Payment of Gratuity (Amendment) Bill, 2017, in Parliament.

Fun zone for employees at the Cafeteria

The amendment is also expected to increase the limit of gratuity of employees in public sector undertakings and autonomous government organisations and bring it at par with central government employees.

The Gratuity Act is an important social security legislation for wage earners in industries, factories and establishments which employ more than 10 employees. Under the Act, payment of gratuity is mandatory 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. The amount is calculated as 15 days wages for every completed year of service rendered. The maximum amount payable was earlier raised from Rs 3.5 lakh to Rs 10 lakh in 2010.

After the implementation of the Seventh Pay Commission recommendations, the ceiling had already been extended to Rs 20 lakh for government servants since January, 2016. The present revision has been proposed after considering inflation and wage increases in the private sector. However, legal experts opine that firms may be hit by the decision due to larger payout on this account.