The maximum limit of gratuity for private-sector employees, who are covered under the Payment of Gratuity Act, 1972, also increased
The Central Government has given its approval for the introduction of the Payment of Gratuity (Amendment) Bill, 2017 in the Parliament. The Bill will double the tax-free gratuity to Rs 20 lakh from the current upper ceiling of Rs 10 lakh for the employees of the formal sector.
The Gratuity Act is a key social-security legislation for the wage earners in industries, factories and other establishments.
The Payment of Gratuity (Amendment) Bill, 2017 will put the maximum limit of gratuity of employees of the private sector as well as the public undertakings and autonomous organisations, which come under government regulation and are not covered under the Central Civil Services (Pensions) Rules. The maximum limit is Rs 20 lakh, which is at par with the Central-Government employees.
As per the CCS (Pension) Rules of 1972 the maximum ceiling was fixed at Rs 10 lakh, but after the implementation of the 7th Pay Commission, the new ceiling will be Rs 20 lakh, which is effective from January 1, 2016.
The Government decided to increase the maximum limit of gratuity for private-sector employees also, who are covered under the Payment of Gratuity Act, 1972. The Act is applicable to firms employing 10 or more persons.
The main reason for this amendment is to provide social-security benefits to employees, who retire due to rules of superannuation or physical disablement or impairment of vital parts of the body. The increase in inflation and wages was also factored in while making this decision.