Cabinet nod likely to double gratuity cap to Rs 20 lakh

The Union Cabinet is likely to consider tomorrow a draft amendment bill which seeks to double the ceiling of tax-free gratuity to Rs 20 lakh under the Payment of Gratuity Act.

Besides, the bill seeks to enable the central government to change the ceiling for tax free gratuity after factoring in rise in income levels by an executive order bypassing Parliament route to amend the law.

"The bill to amend the Payment of Gratuity Act is likely to be considered and approved by the Union Cabinet in its meeting scheduled tomorrow," a source said.

After the amendment in the Act, formal sector workers would be eligible for up to Rs 20 lakh tax-free gratuity. Last month, the central trade unions had agreed on the proposal in a tripartite consultation with the Labour Ministry.

However, the unions had demanded the removal of conditions asking to have at least 10 employees in an establishment and minimum five years of service for payment of gratuity.

At present, as per the Payment of Gratuity Act, an employee is required to do minimum service of five years to become eligible for gratuity amount. Moreover, the Act applies to those establishments where the number of employees is not less than 10.

Trade unions had demanded that the amended provision regarding maximum amount should be made effective from January 1, 2016, as done in the case of central government employees.

Besides that rate of 15 days wages for each completed year of service be raised to 30 days wages, the unions had said during the tripartite meeting.

The proposed amendment to the Payment of Gratuity Act as circulated by the government only deals with enhancing the ceiling of maximum amount under Section 4(3) of the Act from Rs 10 lakh to Rs 20 lakh.

The proposed amendment is being brought to bring the maximum ceiling amount to Rs 20 lakh in line with the 7th Central Pay Commission's recommendations as accepted by the government.

The relevant amendment for central government employees was notified on July 25, 2016 and the enhanced amount ceiling was made effective from January 1, 2016.

The unions were of the view that the delay of eight months for employees covered under the Payment of Gratuity Act should not result in adversely affecting the interest of the concerned employees.

The employers as well as state representatives had also agreed to the proposal of raising the amount of gratuity to Rs 20 lakh in the tripartite meeting held last month.