CA Balwinder Singh

The much waited Social security measure, Payment of Gratuity (Amendment) Bill, 2017 was passed by Rajya Sabha on 22nd March, 2018 after it was passed in the Lok Sabha on 15th March, 2018. On assent by Hon’ble President of India, the same will be made in force by notification in the official gazette.

After 7th Pay Commission was implemented, the ceiling limit of gratuity amount for Central government employees was doubled to Rs. 20 lakh. The Payment of Gratuity (Amendment) Bill gives the central government power to increase the tax free gratuity ceiling from time to time without bringing further amendment bill. The bill has thus paved the way for doubling the ceiling of tax free limit of gratuity to Rs. 20 lakhs as against existing ceiling of Rs. 10 lakhs.

The bill will enable the central government to stipulate the maternity leave period for women employees as deemed to be in continuous service as opposed to current 12 weeks leave period. This change has come in force in the backdrop of Maternity Benefit (Amendment) Act, 2017 increasing the maximum maternity leave period to 26 weeks.

The payment of Gratuity Act, 1972 applies to the followings:

> every factory, mine, oilfield, plantation, port and railway company, shop or establishment in which 10 or more persons  are or were employed on any day of the preceding 12 months;

> such other establishments or class of establishments in which 10 or more persons are or were employed on any day of the preceding 12 months as the Central Government may, by notification, specify in this behalf

The employees will be entitled to gratuity only when they have rendered the continuous service of 5 years or more. At present the employees covered under the Act are eligible for maximum tax exemption of Rs. 10 lakhs. Payment of Gratuity (Amendment) Bill has opened the way to central government to specify the tax exemption up to Rs. 20 lakhs.

The gratuity is calculated as follows:

> Gratuity is payable at the rate of 15 days’ last drawn wages by the employee for every completed year of his service or part thereof in excess of 6 months.

> In case of a monthly rated employee, 15 days’ wages shall be calculated by dividing the last drawn monthly wages by 26 and multiplying the quotient by 15.

> In case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of 3 months immediately preceding the termination of his employment (without taking into account the wages paid for any overtime work)

The newly brought in amendment bill will go long way to ensure social security. It will not only help the tax payers to avail the maximum exemption but also help women to avail more maternity leave.

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  1. K K GUPTA says:

    A person retires from PSU in Jan/ Feb 2018 ie before notification ( 25.03.2018) and received Gratuity Rs 10 lacs. Total amount is exempt for FY 2017-18. Employer took decision to increase gratuity limit to Rs 20 lacs effective 1.01.2017 and paid arrears in next FY say in oct/ nov 2018. In this situation , can we take this plea that payment in 2017-18 was advance payment & settlement of gratuity has been made in 2018-19 and therefore exemption of Rs 20 lacs is available.

  2. Ravi says:

    Very ridiculous policy of the Government of India, inconsistent, unfair, partisan. How can they have one policy for public and other for private sector. Total injustice, laughable one!!!
    At least they must now correct this serious injustice decision on the effective date and make the effective date to 1.1.2016 for the private sector as well.

  3. V R K RAJU says:

    When it is not capable of maintaining equality, how it is justified for the Government to fix Ceiling for Gratuity. Further it’s funny they fix only ‘ceiling’ not the ‘floor’. Shameless bunch of politicians sitting on our head in the name of Givernment.

  4. Bireswar kundu says:

    Political leaders plays got up game with our trade union.our finance minister Arun jetli and Prime Minister Mr Modi are very cleaver person,they never think about mass common employee that’s why they change the effective date of gratuity.It should be from 01/01/2016 considering the high inflammation.Those who retd on February 2018 also deprived by modi govt.I assure all of our viewer that they will not form govt in 2019 unless they change the effective date from 01/01/2016 at par Central pay commission.

  5. Subhash Chauhan says:

    Can there be differences in tax relief to Govt employees and non government employees as effective date is 01.01.2016 for increased gratuity of Rs 20.00 lakh is non taxable will be available to non government employees also?

  6. Honourable finance minister Arun jetli sir and Prime minister sir ,please clarify that the effective date gratuity is 01/01/2016 as given to central govt.employee otherwise it will be mass injustice.The said bill was placed for long time in parliament.

    1. Balwinder Singh says:

      The bill has been passed and yet to be sent to President of India for approval. Once assented by President of India, it will be notified in the official gazette of India.

      1. S K Mahapatro says:

        There is a discrimination between Govt employees and that of non Govt employees including PSU employees. Govt employees are not covered under Gratuity Act and others are covered under Gratuity Act.
        Now Govt employees under Pay Committee already revised to 20 L wef 01.01.16, leaving a doubt for PSU/private employees after President’s assent. There is a discrimination which is UNJUSTIFIED

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