Great news for govt employees: Tax-free gratuity cap set to be doubled

The Lok Sabha on Thursday 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 2 million from existing Rs 1 million 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 1 million to Rs 2 million. The unions are demanding for inclusion of the change into the Act.

The bill was passed amid the din in the Lok Sabha today as uproar over a host of issues went for the second week in a row.

Earlier in the day, Parliamentary Affairs Minister Ananth Kumar said the Payment of Gratuity (Amendment) Bill was an important piece of legislation and sought the opposition's cooperation.

The bill notifies the period of maternity leave as part of continuous service and proposes to empower the central government to notify the gratuity ceiling from time to time without amending the law.

Moving the bill for passage, Labour Minister Santosh Kumar Gangwar said it is a very important legislation for employees, especially women.

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.