Gratuity amendment bill: The government is empowered to fix the ceiling of the retirement benefit through an executive order. Image source: PTI
What is gratuity amendment bill and how you can benefit - explained: Payment of Gratuity (Amendment) Bill 2017 was passed in Parliament yesterday, paving the way for doubling of the limit of tax free gratuity to Rs 20 lakh for private sector employees. According to the Times of India, employees retiring in the near future can look forward to benefit by as much as Rs 3 lakh in the form of tax savings. The government is empowered to fix the ceiling of the retirement benefit through an executive order. The Rajya Sabha passed the bill, which was approved by the Lok Sabha last week, on March 15. The central government is now enabled to fix the ceiling of tax free gratuity, besides being empowered to fix the period of maternity leave through executive order. This limit of Rs 20 lakh has already been implemented by 7th Pay Commission recommendations for government employees. The gratuity amendment bill notifies the period of maternity leave as part of continuous service and proposes to empower the central government to notify the gratuity ceiling from time to time without amending the law.
Payment of Gratuity (Amendment) Bill 2017
Introduced in 1972, the Act was enacted to provide for gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops and other establishments. Employees, who have rendered a minimum five years of continuous service with the establishment, which employs ten or more persons, fall under the Act.
The latest bill seeks to amend the Act on two issues.
1- It will empower the government to notify the period of maternity leave eligible for qualifying as continuous service and determine the amount of gratuity available to employees. Under the Act, maximum maternity leave (Section 2A) was based on the maternity leave stated under the Maternity Benefit Act, 1961. After the amendment of the Maternity Act in 2017, the maximum maternity leave under the Maternity Act has now been changed from 12 weeks to 26 weeks.
Present gratuity amendment bill seeks to do away with the reference of 12 weeks in the Act, empowering the government to notify the maximum maternity leave.
2- According to the Act, a ceiling of Rs 10 lakh on the maximum amount of gratuity payable to an employee was fixed through an amendment in 2010. The provision was based on the Central Civil Services (Pension) Rules, 1972 enacted for government employees.
After 7th Pay Commission recommendation, the ceiling on gratuity for Central Government employees has been enhanced from Rs 10 lakh to Rs 20 lakh. Therefore, seeking to amend the current provision (Section 4) of the Payment of Gratuity Act, 1972, the latest bill empowers the government to notify the ceiling proposed instead of amending the Act. This amendment has been sought so that the limit can be revised from time to time with the increase in wage and inflation and future pay commissions.
It may be noted that gratuity is calculated based on 15 days of wages for each year of continuous and complete service, subject to a ceiling.
The labour ministry statement said the bill also envisages amending the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from "twelve weeks" to such period as may be notified by the central government from time to time.
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On gratuity amendment bill being passed, Prime Minister Narendra Modi tweeted: "A significant pro-people measure passed in Parliament. Will benefit lakhs of Indians."
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