Change to gratuity Act likely in coming session

Act applies to those establishments where the number of employees is not less than 10

The government is likely to bring a change to an Act to make gratuity up to Rs 20 lakh tax-free in the upcoming second half of the Budget session of Parliament slated to begin on Thursday.

The change to the Payment of Gratuity Act will not only raise the tax-free portion of the gratuity but also allow the government to increase it through the executive order in the future, official sources said. 

Ceiling on gratuity will be linked to inflation and that way it would be raised through an executive order in the future, if the Bill is passed by Parliament. 

Earlier, the labour ministry and trade unions reached an understanding in this regard. 

Pavan Kumar, organising secretary of the Bharatiya Mazdoor Sangh, said the government has conveyed to the trade unions that the change to the Act is slated to be introduced in the Budget session. 

However, he said trade unions have also demanded other changes, including a change in the current formula of calculation of gratuity to increase the number of days for which gratuity is calculated from 15 days in a year to 26 days. Currently, gratuity received is tax-free to the extent that it does not exceed 15 days' salary for every completed year of service.

The unions, he said, have also demanded removal of the five-year ceiling. Currently, one gets gratuity only if he has completed five years of service. 

The Act applies to those establishments where the number of employees is not fewer than 10.