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Gratuity limit up to Rs 10 lakh

Last updated: 05 March, 2010
Aditya Raj Das, New Delhi, Mar 4, DHNS:

In a major relief to salaried class in the private sector, the government on Thursday cleared a proposal to raise the Income Tax (I-T) ceiling for payment of gratuity from the existing limit of Rs 3.5 lakh to Rs 10 lakh.

This decision was taken at a Cabinet meeting chaired by the Prime Minister.
“The Cabinet decided to amend the Payment of Gratuity Act, 1972 to enhance the gratuity limit for employees working in the private sector with no tax liability,” highly placed sources told Deccan Herald, which had earlier reported about the move. This decision of the Cabinet will bring parity between government and private sector employees in enjoying equal gratuity benefits. The government will introduce the necessary legislation for amending the Payment of Gratuity Act to enhance the gratuity limit during the ongoing Budget session of Parliament, sources said. 

The Labour Ministry in its pre-Budget consultation with the Finance Ministry had proposed to raise the Income Tax exemption limit for gratuity funds up to Rs 10 lakh for both government as well as private employees. The Sixth Pay Commission in its report had recommended hiking the ceiling of Rs 3.5 lakh on gratuity funds to Rs 10 lakh  for government employees.

The Labour Ministry floated the idea of extending similar benefit for the employees working in private sector.  


Before sending its pre-Budget recommendations to the Finance Ministry, the Labour Ministry had sought the views of apex chambers of trade and industry as well as trade unions on the issue of hiking the ceiling on gratuity funds for private sector employees.   
Apart from Trade Unions, who are otherwise expected to welcome the proposal,  apex chambers of trade and industry representing the employers side too have welcomed the Labour Ministry’s proposal to raise ceiling for gratuity funds.

The FICCI–the leading chamber of trade and industry–in its note submitted to the Labour Ministry is understood to have pointed out that enhancement of ceiling on gratuity fund would also translate into increase in entitlement of the employee in most cases.

Many employees, whose gratuity amount exceeds more than Rs 3.5 lakh, are not getting it so far. This will change with the change in the ceiling, FICCI said. As per the Payment of Gratuity Act, 1972, on completion of five years service, employees are entitled to payment of gratuity subject to a maximum of Rs 3.5 lakh.

The gratuity is considered an income and the employee who receives it is liable to pay taxes on it. However, gratuity up to Rs 3.5 lakh is exempted from Income Tax.

Instant grat(uity)ification

* The Cabinet decision will bring parity between government and private sector
employees in enjoying equal gratuity benefits

*n Necessary legislation for amending the Payment of Gratuity Act will be introduced during the current session of Parliament

* The idea was floated by Labour Ministry during pre-Budget consultations with the Finance Ministry

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