Gratuity of up to Rs 20 Lakh Could be Tax Exempt, if Parliament Passes Bill

A bill that will double the ceiling for tax exempt gratuities from the current Rs 10 lakh to Rs 20 lakh may be passed in the monsoon session of Parliament, Labour Minister Bandaru Dattatreya told PTI.

An Amendment to the Payment of Gratuity Bill has to be first scrutinised by the Cabinet and Dattatreya indicated that it would soon go to the Cabinet for approval.

If the bill is passed into law by Parliament formal sector workers will be eligible to claim tax exempt status for gratuities up to Rs 20 lakh.

"This is on our agenda. It may come in this session. It will soon go to the Cabinet for approval," Dattatreya was quoted by PTI as saying.

Currently, only employees who have put in five years of service are eligible for gratuity. Also, there need to be a minimum of 10 employees for an employer to pay gratuity. Trade unions have regularly pressed the Labour Ministry to relax these conditions.

The Payment of Gratuity (Amendment) Bill deals with raising the ceiling for the maximum amount under to be tax exempt from Rs 10 lakh to Rs 20 lakh. The proposed amendment is being brought to bring the maximum ceiling amount in line with the 7th Pay Commission's recommendations, which have been 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.

The unions were of the view that the delay of eight months for employees covered under the Payment of Gratuity Act should not result in adversely affecting the interest of the concerned employees.

The employers as well as state representatives had also agreed to the proposal of raising the amount of gratuity to Rs 20 lakh in the tripartite meeting held last month