Parliament passes Payment of Gratuity (Amendment) Bill

Last Updated 22 March 2018, 10:08 IST

Parliament on Thursday passed a key bill that seeks to double tax-free gratuity amount to Rs 20 lakh from the current Rs 10 lakh for employees falling under the Payment of Gratuity Act.

Rajya Sabha passed the Payment of Gratuity (Amendment) Bill, 2017 that aims at providing social security to retired people by a voice vote without any discussion. The bill was moved by Labour Minister Santosh Kumar Gangwar. Lok Sabha had passed the bill last week.

The amendment will increase the maximum limit of the gratuity of employees, in private sector and public sector undertakings/ autonomous organizations under the government who are not covered under CCS (Pension) Rules, at par with central government employees. The gratuity amount of central government employees has already been doubled after the implementation of the 7th Pay Commission recommendation.

The Gratuity Act applies to establishments employing 10 or more people. Gratuity is calculated on the basis of the tenure of service and last drawn salary.

The bill also allows the government to increase the gratuity ceiling from time to time without amending the law. Besides, it allows the government to fix the period of maternity leave for female employees as deemed to be in continuous service in place of the existing 12 weeks.

Calculation of Gratuity

Gratuity = [ (Basic Pay + D.A) x 15 days x No. of years of service ] / 26. Here, 26 is the number of days which is equivalent to one month. Since the employee is getting four paid holidays a month he has actually worked for 26 days which is considered as one month for the purposes of gratuity calculation.

And, 15 means an employee's 15 days Basic + DA at the time of retirement/ resignation. To be more explicit, an employee gets his last 15 days basic + DA for every completed year of service as gratuity.

Gratuity is tax-free benefit.

(Published 22 March 2018, 09:36 IST)

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