Lok Sabha passes bill to enable govt to double tax-free gratuity to Rs 20 lakh

The Lok Sabha today passed the Payment of Gratuity (Amendment) bill which seeks to empower the government to fix period of maternity leave and tax-free gratuity amount with an executive order. After the passage of the Payment of Gratuity (Amendment) Bill in the Rajya Sabha, the government would be able to enhance the ceiling of tax-free gratuity to Rs 20 lakh from existing Rs 10 lakh for employee under the Payment of Gratuity Act. After implementation of the seventh Central Pay Commission, the ceiling of gratuity amount for central government employees was increased from Rs 10 lakh to Rs 20 lakh. The unions are demanding for inclusion of the change into the Act.

Now, the bill will go to the Upper House for consideration and passage. At present, formal sector workers with five or more years of service are eligible for Rs 10 lakh tax-free gratuity after leaving job or at time of superannuation. A senior government official said that the government wants to provide tax-free gratuity of Rs 20 lakh to organised sector workers at par with the central government.

The Payment of Gratuity Act, 1972, was enacted to provide for gratuity payment to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. The law is applicable to employees, who have completed at least five years of continuous service in an establishment that has 10 or more persons.

The amendment will also allow the central government to notify the maternity leave period for “female employees as deemed to be in continuous service in place of existing twelve weeks”. The proposal comes against the backdrop of the Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks.

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