Tax-free gratuity limit set to go up to Rs 20 lakh: Labour Ministry Sources

By: Prakash Priyadarshi

Payment of Gratuity (Amendment) Bill, 2017, which will make formal sector workers eligible for tax-free gratuity up to Rs 20 lakh, is likely to be introduced in the forthcoming budget session. 

At present formal sector workers with five or more years of service are eligible for Rs 10 lakh tax-free gratuity after leaving the job or at time of superannuation. 

According to a labour ministry source, the government wants to increase the limit of tax-free gratuity from Rs 10 lakh to Rs 20 lakh for workers in the organised sector.

Sources said that once the bill is passed by the Parliament, the government can increase the quantum of tax-free gratuity through a notification. 

The bill was introduced in the Lok Sabha by labour minister Santosh Kumar Gangwar during the winter session of Parliament in December 2017. 

What is Payment of Gratuity Act

The Payment of Gratuity Act 1972 provides for the payment of gratuity to employees engaged in industries including mines, oilfields, plantations, shops, factories, amongst others. The tax-free gratuity limit was raised to Rs 10 lakh through the Payment of Gratuity (Amendment) Bill, 2010. 

The law is applicable to employees, who have completed at least five years of continuous service in an establishment that has ten or more employees.