Payment of Gratuity Bill 2018 –Gratuity Ceiling increased to Rs. 20 lakh From Rs. 10 lakh

Published Date - 24 March 2018 04:48:25 Updated Date - 15 April 2018 02:30:42

The Parliament has passed The Payment of Gratuity (Amendment) Bill, raising the ceiling for maximum amount of gratuity to Rs20 lakh from the existing limit of Rs 10 lakh.  Employees are paid gratuity if they have completed five years of continuous service at the time of leaving the company.

It may be noted that after the implementation of the Seventh Pay Commission report, the ceiling of tax-free gratuity amount for Central government staff was doubled to Rs 20 lakh. Following that, the government was making all efforts to do this for the private sector employees also.

The Payment of Gratuity Act, 1972 applies to organisations where 10 or more persons are employed. The main purpose of this Act is to provide social security to employees after retirement.

To give you an example, an employee who has completed 20 years of service earning  monthly salary of Rs 2 lakh, will now be eligible to receive Rs 20 Lakhs (15/26 x 2,00,000 x 20 years) as gratuity, though the actual amount works out to Rs23 lakh. Earlier you were restricted to take Rs10 lakh only.

Similarly, you will enjoy higher tax exemption limit of Rs 20 lakh which is currently at Rs 10 lakh. So people at the higher tax bracket of 30% will straight away save Rs3 lakh on their gratuity amount.

This bill will ensure increased gratuity to private sector employees just like Public Sector Undertakings under central government. In this amendment, the Maternity Benefit Leave for women employees which is currently 12 weeks is now extended to 26 weeks. The Payment of Gratuity Act, 1972 is applicable to all the establishments / companies with more than 10 employees.

This bill amendment was introduced to provide social security to the workers after their retirement. Minister of State, Labour & Employment (I/C) Santosh Gangwar has moved this bill today which passes through a voice note.


What is gratuity?

Gratuity forms part of one’s salary and is paid by an employer to an employee after rendering services for at least five years in the same organisation. Gratuity is, thus, a kind of benefit which is provided by the employer to its employee. Gratuity is mostly saved for retirement purpose only and its amount is tax-free under the Income Tax Act.

Payment of Gratuity Bill 2018

The important features and highlights of this Payment of Gratuity (Amendment) Bill 2018 are as follows:-

  All the private sector employees are now entitled to get the same benefits as their counterparts in govt. sector.

  As per the recommendation of 7th Pay Commission, the ceiling of gratuity is doubled from Rs. 10 lakh to Rs. 20 lakh.

  This bill provides social security to the entire wage earning population working in various industries / factories.

  Under the provisions of this bill amendment, all the women workers can now avail 26 weeks maternity leave from currently 12 weeks. All the lady employees will be deemed to be in the continuous service for this time period.

Under this Bill, gratuity will get paid to all the employees engaged in either private or public sector including factories, mines, oilfields, plantations and ports.

The upper ceiling on gratuity amount under Payment of Gratuity Act 1972 was Rs. 10 lakh. Central govt. now follows the recommendations of the 7th Pay Commission which suggests that the ceiling of gratuity must be raised in consideration with the inflation and wage increase. Lok Sabha passed this bill on 15 March 2018 while Rajya Sabha passes this bill on 23 March 2018.

How will private employees now get benefited?

Experts believe that the passage of the Payment of Gratuity (Amendment) Bill by Parliament will hugely benefit the middle and senior management employees who are getting higher salaries. With the ceiling on Gratuity having been raised, they will now receive a higher gratuity amount as tax-free compensation, at par with Central government employees, which is Rs 20 lakh.

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