Payment of Gratuity (Amendment) Bill, 2017 was passed by the Lok Sabha on 15th March, 2018 followed by the Rajya Sabha also passing it on 22nd March, 2018. The amendment will shortly come into force after receiving the President of India’s assent and the same being notified in the official gazette. This bill has paved the path for doubling the tax-free limit of gratuity to twenty lakh Rupees as against the existing ceiling of ten lakh Rupees.
The Payment of Gratuity Act allows for payment of gratuity, as an expression of the gratitude of any employer for five or more years of continuous service, upon the retirement, superannuation or resignation of an employee.
The Payment of Gratuity Act, 1972 applies to every factory, mine, oilfield, plantation, port and railway company, shop or establishment in which ten or more persons are or were employed on any day of the preceding twelve months and such other establishments or class of establishments in which ten or more persons are or were employed on any day of the preceding twelve months as the Central Government may, by notification, specify in this behalf.
The Act is applicable to all establishments with ten or more employees, including Not-for-Profit establishments which are covered by the Shops and Establishments Act
Amount of gratuity is directly proportionate to the tenure of service, and also to the last drawn salary. The gratuity is given at the rate of fifteen days of the last drawn salary for each year of service. The salary that is considered for the calculation of gratuity is the last drawn salary that includes basic pay and dearness allowance.
With effect from 1st January, 2007, the ceiling for gratuity payments was raised to ten lakh Rupees. After a gap of a decade, the ceiling will now be doubled to twenty Lakh Rupees.