The Union Cabinet in a meeting will be considering a bill to amend the Payment of Gratuity Act, which will double tax-free gratuity ceiling to Rs 20 lakh for private sector employees. Currently, private sector employees can get tax exemption up to Rs 10 lakh in gratuity after five years of continuous employment.
The central trade unions had recently agreed on the proposal in a tripartite consultation with the Labour Ministry. However, they demanded the removal of minimum of 10 employees clause and minimum 5 years of service clause for applicability of the Act in Establishments. The trade unions also demanded that the new gratuity ceiling for tax benefits should be made effective from January 1, 2016, in line with the norms set for government employees. Besides that rate of 15 days wages for each completed year of service be raised to 30 days wages.
The move to benefit individuals employed in the private sectors 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.