Government doubles tax-free Gratuity to Rs. 20 Lakh

Parliament passes Payment of Gratuity (Amendment) Bill which will increase the ceiling of tax-free gratuity amount to Rs. 20 lakh from 10 lakh. This will also let the government increase the gratuity ceiling from time to time without making any rectifications in the law.

This will also allow the government to set the period for maternity leave for female employees who are deemed to be in continuous service as opposed to the requirement of an amendment in the legislation.This amendment in Payment of Gratuity Act was introduced as a result of an amendment in Maternity Benefit Act which increased the maximum maternity period to 26 weeks.

The proposed amendment with an increase in the tax-gratuity limit will directly benefit those with high-salaries as not many people will be earning a basic salary over Rs, 70,000. This increase will benefit most employees who have either just started working or have years to go for retirement.

As per the present Act, employees with five or more years of service are eligible for Rs 10 lakh tax-free after leaving job or at time of superannuation. Payment of gratuity act is applicable to employees who have completed at least five years of continuous service in an establishment that has 10 or more employees.