Parliament has passed an important bill that has allowed the government to extend the tax-free gratuity limit from the existing amount of INR 10 Lakhs to INR 20 Lakhs. Besides, it will also enable the government to fix the period of maternity leave with an executive order.
The amendment would help the government to fix the maternity leave period as part of the continuous service and also it can change the gratuity ceiling from time to time without amending the law.
As the tax-exempt gratuity limit doubles up, this implies that all employees in public and private sector companies will have zero tax liability as long as their gratuity amount is up to INR 20 Lakhs. The Lok Sabha gave its approval to the bill last week.
Followed by the implementation of the 7th Pay Commission, the tax-free gratuity ceiling for central government employees was doubled to INR 20 Lakhs. Besides, the government will also notify the maternity leave period as deemed to be in continuous service in place of existing 12 weeks.
The amendment in the gratuity law comes against the backdrop of the Maternity Benefit (Amendment) Act 2017 extending the maximum maternity leave period to 26 weeks.
The Payment of Gratuity Act 1972 came in force to provide gratuity payment to employees engaged in factories, mines, ports, railway companies, plantations, shops, and other establishments. Presently, it applies to establishments employing 10 or more employees whereby the gratuity is calculated on the basis of the service tenure and last drawn salary.
While the government employees already enjoy a fully tax exempted gratuity amount, the amendment would help the employees working at the middle and senior management levels who are getting high salaries.
