The Budget 2019 was mainly focused on the welfare of the farmers and the middle class with meaningful tax relief leading to higher disposable income and potentially higher per capita savings. For working professionals, the gratuity limit was raised from Rs 10 lakh to Rs 20 lakh. This development was first introduced in Payment of Gratuity (Amendment) Act, 2018, when the upper ceiling on gratuity amount under the Act was Rs. 10 Lakh. However, with the implementation of 7th Central Pay Commission, the ceiling was raised to Rs. 20 Lakhs, as on the PIB release of 29th March 2018.
Industry experts believe, with the gratuity limit hike from Rs 10 lakh to Rs 20 lakh, along with other developments, there will be an impact on the total amount an average Indian manages to save every year, which will boost spending in the economy, driving growth further.
Yashish Dahiya, Co-founder and CEO, Policybazaar.com, says, “This will make the private sector as well as public undertakings eligible to receive a higher amount of gratuity. The change apart from providing a higher tax benefit for employees who are covered under the Gratuity Act is also expected to bring equality with respect to the maximum limit of gratuity applicable for Central Government employees under the Central Civil Services (Pension) Rules, 1972.”
Experts believe with this move, employees will be encouraged to stay in a job for a longer period of time and not switch their jobs frequently. Rakesh Goyal, Director, Probus Insurance Brokers Ltd, says, “This move will help both employers as well as employees (common man). With the increase in the ceiling, employees will be encouraged to stay in a job for a longer period of time and not switch the jobs frequently. This is also beneficial for employers as there will be less churn in their organization.” Gratuity is payable at superannuation and retirement or resignation.
Industry experts add, with this development the gratuity contribution by the employees from their take-home salary will not be affected. For example, an employee who has rendered 20 years of service with a monthly salary of Rs. 1.5 Lakhs (at the time of retirement), with the proposed amendment, would now be eligible to receive Rs. 17.30 Lakhs (15/26 x 1,50,000 x 20 years) as gratuity, which would have been otherwise restricted to Rs 10 lakhs under the earlier provisions.
From the Budget 2019, earlier it was expected that some alterations in income tax incentives were made that would help drive a behavior change towards disciplined savings and greater life cover amongst Indians. Apart from this, it was also expected that the government would have increased the limit of investments under 80C of Income Tax from the current Rs 1.5 lakh to Rs 2 lakh. Rakesh Goyal adds, “Even within the section of 80C, there should be specific limit attached to the insurance product. For example, the government can say that investors should invest only Rs 50,000 or Rs 1 lakh under Section 80C only for insurance or pension products while remaining gap can be filled with the public provident fund or equity-linked saving scheme (ELSSS).” If this was implemented, it would have bought in long term money for insurers and at the same time given investors savings and protection option through insurance.