Cabinet likely to double gratuity cap to Rs 20 lakh: Here are 10 things to know

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Published: March 15, 2017 3:29:22 PM

The Union Cabinet is likely to consider today a draft amendment bill, which seeks to double the ceiling of tax-free gratuity to Rs 20 lakh, under the Payment of Gratuity Act. Gratuity is a sum of money which forms part of one's salary. It is paid by the employer to their employee on rendering services for not less than 5 years in the same company.

The bill seeks to enable the Central government to change the ceiling for tax-free gratuity after factoring in the rise in income levels by an executive order bypassing the Parliament route to amend the law.

The Union Cabinet is likely to consider today a draft amendment bill, which seeks to double the ceiling of tax-free gratuity to Rs 20 lakh, under the Payment of Gratuity Act.

Gratuity is a sum of money which forms part of one’s salary. It is paid by the employer to their employee on rendering services for not less than 5 years in the same company.

It is a kind of benefit provided by the company to its employee. Mostly the employees save the gratuity amount for their retirement purpose only and the amount is also exempt from taxation under the I-T Act for state government employees, central government employees or any local authority receiving the amount under the Gratuity Act 1972.

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Here are 10 things to know regarding the amendments being made in the bill.

1. The Union Cabinet is likely to consider today a draft amendment bill which seeks to double the ceiling of tax-free gratuity to Rs 20 lakh under the Payment of Gratuity Act.

2. The bill seeks to enable the Central government to change the ceiling for tax-free gratuity after factoring in the rise in income levels by an executive order bypassing the Parliament route to amend the law.

3. After the amendment in the Act, formal sector workers would be eligible for up to Rs 20 lakh tax-free gratuity. Last month, the central trade unions had agreed on the proposal in a tripartite consultation with the Labour Ministry.

4. The 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.

5. Trade unions had demanded that the amended provision regarding the maximum amount should be made effective from January 1, 2016, as done in the case of Central government employees.

6. The rate of 15 days wages for each completed year of service be raised to 30 days wages, the unions had said during the tripartite meeting.

7. The proposed amendment to the Payment of Gratuity Act as circulated by the government only deals with enhancing the ceiling of the maximum amount under Section 4(3) of the Act from Rs 10 lakh to Rs 20 lakh.

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8. The proposed amendment is being brought to bring the maximum ceiling amount to Rs 20 lakh in line with the 7th Central Pay Commission’s recommendations as accepted by the government.

9. 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.

10. 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 held last month.

(With inputs from a PTI report)

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