Ceiling on tax-exempted gratuity for private sector to be raised to Rs20 lakh

24 Feb 2017


The government has agreed to raise the eligibility ceiling for tax-exempted gratuity payment to workers in the formal sector to Rs20 lakh as part of an interim measure to placate central trade unions who have now agreed on the proposal in a tripartite consultation with the labour ministry.

The central trade unions have agreed on doubling gratuity amount ceiling as an interim measure in a tripartite meeting on the proposed amendment to Payment of Gratuity Act made by the labour ministry.

The unions demanded the removal of conditions that an establishment should have at least 10 employees and the employee should have put in a minimum five years of service to be eligible for payment of gratuity.

"While accepting the maximum payment limit of Rs20 lakh as an interim measure, the unions demanded that the ceilings / limit with respect to number of employees and years of service should be removed," the All India Trade Union Congress (AITUC) said in a statement.

"The central trade unions have been urging the government that the ceiling in the amount of gratuity should be removed," it said.

As per the Payment of Gratuity Act, an employee is required to put in minimum service of five years to become eligible for gratuity payment.

Also, the Act applies only to those establishments with 10 or more employees.

The trade union wants the application of amended provision regarding maximum amount to be made effective from 1 January 2016 as was done in the case of central government employees.

Besides the union demanded that the present gratuity rate of 15 days' wages for each completed year of service be raised to 30 days wages.

The proposed amendment to the Payment of Gratuity Act as circulated by the government along with the letter dated 15 February 2017 only deals with enhancing the ceiling of maximum amount under Section 4(3) of the Act from Rs10 lakh to Rs20 lakh, the unions said.

The employers as well as state representatives are reported to have agreed to the proposal of raising the amount of gratuity to Rs20 lakh.

The relevant amendment for central government employees was notified on 25 July 2016 and the enhanced amount ceiling was made effective from 1 January 2016.

The unions are of the view that the delay of 8 months for employees covered under the Payment of Gratuity Act should not result in adversely affecting the interest of the concerned employees.

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