pri Tax Free Gratuity limit increased from Rs.10 Lac to Rs.20 Lac Tax Free Gratuity limit increased from Rs.10 Lac to Rs.20 Lac

CA Pardeep Kumar


The payment of Gratuity Act, 1972 (hereinafter referred to as “The Act”) was passed by Indian Parliament on 21 August 1972. The act came in force on 16 September 1972.. The Act applies to the establishments employing 10 or more persons. The main purpose for enforcing this Act is to provide social security to workman after retirement. It is a welfare act and envisioned to those workman who renders their service for long period of time and they were considered as faithful employees. The employee has to complete at least 5 years in the organization to claim the gratuity amount.

Considering the inflation and wage increase even in case of employees engaged in private sector, the Government decided that the entitlement of gratuity should also be revised in respect of employees who are covered under the Payment of Gratuity Act, 1972.  Accordingly, the Government initiated the process for amendment to Payment of Gratuity Act, 1972 to increase the maximum limit of gratuity to Rs.20 Lakh.

In result, the Payment of Gratuity (Amendment) Act, 2018 was passed and received Presidential assent on 28th March, 2018 and came into force on 29th March, 2018.

This amendment has aimed to ensure harmony amongst employees in the private sector and in Public Sector Undertakings/ Autonomous Organizations under the Government who are not covered under CCS (Pension) Rules. These employees will be entitled to receive higher amount of gratuity at par with their counterparts in the Government sector. Amendment Act of 2018 brought two grave changes befitting the employees. Firstly, employees receiving a higher amount of gratuity payable by the employer as compared to that of 1972. Secondly, it enhances the maximum maternity leave period to 26 weeks against the backdrop of the Maternity Benefit (Amendment) Act, 2017.

 Recent CBDT Notification

Now the CBDT vide Notification No. 16/2019/F. No. 200/8/2018-ITA-I dated 8th March, 2019 has specified twenty lakh rupees as the limit for the purposes of Section 10(10)(iii) of the Income Tax Act, 1961 in relation to the employees who retire or become incapacitated prior to such retirement or die on or after the 29th day of March, 2018 or whose employment is terminated on or after the said date.

In view of the aforesaid, those taxpayers who have received the gratuity during 29.03.2018 to 31.03.2018 and have filed their income tax returns for AY 2018-19 by claiming only Rs.10,00,000/- as exemption u/s 10(10) of the Income Tax Act, should revised their return of income to claim the benefit of the revised limit even if their return of income have been processed by the CPC.

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One Comment

  1. Avinash Vishnu Bhadkamkara says:

    A small correction. The Payment of Gratuity Act,1972 came into force from 16 September 1972 and not from 21 August 1972 as mentioned by you.

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July 2021