Tax-free gratuity ceiling raised to Rs. 20 lakh for private sector employees:

The Centre has recently approved an amendment bill that seeks to increase the maximum limit of gratuity for private and public sector employees from Rs 10 Lakhs to Rs 20 Lakhs. This amendment effective from 29th March 2018, vide notification S.O 1420 (E) dated 29.03.2018 increased the limit of amount of gratuity payable to an employee under sub-section (3) of section 4 of the Payment of Gratuity Act, 1972 (39 of 1972) from the existing limit of Rs. 10 Lakhs to Rs. 20 Lakhs.

The notification follows changes in the Payment of Gratuity Act which had empowered the government to fix the ceiling of the retirement benefit through an executive order.

The amendment bill approved by Parliament in the month of March 2018 had also empowered the government to fix the period of maternity leave. Central Government hereby specifies for the purposes of the clause (iv) of the Explanation to sub-section (2) of section 2A of the Payment of Gratuity Act, 1972 that the total period of maternity leave in the case of a female employee shall not exceed twenty-six weeks.

Accordingly, the central government has fixed the total period of maternity leave in the case of a female employee to 26 weeks.

After implementation of the 7th Central Pay Commission, the ceiling of tax-free gratuity amount for the central government employees was increased from Rs 10 lakh to Rs 20 lakh. The unions have been demanding for inclusion of the change in the Payment of Gratuity Act.

So far, 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.

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.

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