Budget 2018: Gratuity up to Rs 20 lakh may become tax-free

Payment of Gratuity (Amendment) Bill, 2017, which will make formal sector workers eligible for tax-free gratuity up to Rs 20 lakh, is likely to be introduced in the forthcoming budget session. 

According to a labour ministry source, the government wants to increase the limit of tax-free gratuity from Rs 10 lakh to Rs 20 lakh for workers in the organised sector.

 Sources told Zee Business that once the bill is passed by the Parliament, the government can increase the quantum of tax free gratuity through a notification. Currently, workers in the organised sector with five or more years of service are eligible for Rs 10 lakh tax-free gratuity after leaving employment or at the time of superannuation. 

The bill was introduced in the Lok Sabha by labour minister Santosh Kumar Gangwar during the winter session of Parliament in December 2017. 

The Payment of Gratuity Act 1972 provides for the payment of gratuity to employees engaged in industries including mines, oilfields, plantations, shops, factories, amongst others. The tax-free gratuity limit was raised to Rs 10 lakh through the Payment of Gratuity (Amendment) Bill, 2010. 

The law is applicable to employees, who have completed at least five years of continuous service in an establishment that has ten or more employees. 

Last year, the Union Cabinet chaired by Prime Minister Narendra Modi approved the introduction of the Payment of Gratuity (Amendment) Bill, 2017 in the Parliament.

The Amendment will increase the maximum limit of gratuity of employees, in the private sector and in public sector undertakings/ autonomous organisations under the government who are not covered under CCS (Pension) Rules, at par with Central Government employees.

The Payment of Gratuity Act, 1972 applies to establishments employing 10 or more people. The main purpose for enacting this Act is to provide social security to workmen after retirement, whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body. Therefore, the Payment of Gratuity Act, 1972 is an important social security legislation to wage earning population in industries, factories and establishments.