With the introduction of the Payment of Gratuity (Amendment) Bill, 2017 in the Parliament, there is an increase in the ceiling limit of gratuity for employees in private and public sector, at par with the central government employees.
Gratuity is a social security benefit received by an employee from an employer at end of employment. To claim the benefit employee must have worked with an employer for at least five consecutive years.
The Payment of Gratuity Act, 1972 applies to establishment employing 10 or more employees working in factories, mines, oilfields, plantations, ports, railway companies, shops or other related establishments.
However, considering the inflation and wage increase, the Government is of the opinion that gratuity should be applicable even to private sector employees.
Gratuity is calculated at on the last drawn salary which is basic salary plus dearness allowance multiplied by the number of completed years of service multiplied by 15 divided by 26. The time period over six months or more is considered as one year.
Gratuity is paid to public and private sector employees are tax-free up to 20 lakh. Prior to the amendment, any amount paid to the employee over 10 lakh was taxable.
Unlike provident fund, gratuity amount is paid the employer alone, therefore the amendment would increase employers financial burden.
Sukanya Raman, Associate