Amendment Bill to Payment of Gratuity Act 2017
An amendment bill pertaining to payment of Gratuity Act has received approval from the Union Cabinet on 12th September 2017. The Union Cabinet was chaired by the Prime Minister Narendra Modi. The latest amendment will give a maximum limit of gratuity. This will apply to the employees of private sector as well PSUs.
This means approval to an amendment bill which will increase the tax-free gratuity by double. The bill recommends the tax-free gratuity up to Rs 20 lakh. Currently the tax-free gratuity is Rs. 10 lakhs since April 2010. Before April 2010, the same was Rs. 3.5 lakhs. The entire payment of Gratuity Act is not tax exempted. But only certain amount of the Gratuity payment is declared tax-free.
What is Gratuity Payment
Gratuity is a form of payment received by the employee at the end of the service. Any employee who was worked for minimum 5 years is eligible to receive it. It is payable only after the resignation or retirement of the employee. It is a kind of employee benefit in India for private sector and public sector units. You can also get information on employee provident fund on our site.
Latest Amendment in Gratuity Act 1972
From the year of inception, Gratuity Act has gone through many revisions. The payment of Gratuity Act Bill 2017 will be the latest amendment in Gratuity Act 1972. If the bill goes through, the tax free gratuity amount will be 20 lakhs. The amount exceeding 20 lakhs will be however taxed. Due to the latest amendment bill 2017, employees will earn a higher amount of this benefit.
The upper ceiling on gratuity act of Rs. 20 lakhs stands effective from 1st January 2016. The provisions will be the same for the central government employees.
Gratuity Payment Calculation for Tax Exemption
The tax exemption on the amount received as gratuity calculation is here in details. The calculation is on the following three basis. The lowest amount from these three is finally applicable.
- The ceiling or upper limit of tax-free amount
- The actual amount of gratuity received by the employee
- Amount of gratuity derived as per below formula
Last drawn salary X 15/26 X no. of years of service = Gratuity
Notes: 1. Last drawn salary should be basic + DA
- No. of years of job should be rounded off to the full year
Who is Eligible for Gratuity
Employees who have served an organization continuously for 5 years are eligible for gratuity. However, the organization should be employing minimum 10 or more than 10 employees. Employees engaged in ports, railways, mines, factories, railway companies, shops, and other areas of private sector receive payment of gratuity act. The complete payment is from employer’s side. There is no deduction from the employee’s salary.
Gratuity is one of the major retirement saving schemes for salaried class. It comes immediate after EPF and pension schemes. The main aim behind payment of Gratuity Act 1972 is to ensure economical security to the workers after retirement. An employer has to pay this amount to the employee at the time of the end of his/her services. The reason for leaving can also be physical disability or superannuation. Hence, it serves as a major legislation for wage earners. It also applies to the all salaried people.
Myepfbalance.co.in is here to bring useful information for the Indian citizens. We are an independent portal providing information on payment of Gratuity Act and EPFO. All information pertaining to Aadhar card will be available soon.