ring
Gratuity Limit

Tax-Free Gratuity Limit

Tax-Free Gratuity Limit

Gratuity is a sum of money paid to an employee at the cessation of his/her employment. The Payment of Gratuity, Act, 1972, was brought into force to facilitate the gratuity payment to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. Gratuity laws are applicable to employees, who have completed a minimum term of five years of continuous service in an establishment with 10 or more employees.

The Government has recently increased the tax-free gratuity limit from Rs.10 lakhs to Rs.20 lakhs. The increase in tax-free limit was introduced through the Payment of Gratuity Bill, 2017. In this article, we look at gratuity payment in detail.

Know more about Gratuity.

Who can Claim Gratuity?

The Payment of Gratuity, Act, 1972, has specified the following persons to be the rightful recipients of gratuity:

  • Employees eligible for superannuation.
  • Retired employees.
  • Employees, who have completed a minimum term of five years of continuous service in an establishment, which houses ten or more persons.
  • An employee who becomes deceased or disabled due to illness or accident.

The amount of gratuity is determined by two important aspects:

  • The number of years served in an organization.
  • The basic salary received most recently.

Payment of Gratuity Bill, 2017

The Government has increased the tax-free limit of gratuity received by an employee to Rs.20 lakhs. The increase in tax-free limit for gratuity will help higher salary employees. Employees in both Government and Private sector will benefit from the tax-free gratuity limit increase.

In a span of an employee’s career, the tax-exempt gratuity amount that is claimable cannot exceed Rs.20 lakhs in total, from all the employer’s put-together. Employers can pay more than the stipulated Gratuity amount and any amout paid as gratuity by the employer over Rs.20 lakhs would be taxable.

Maternity Leave

In addition to the increase in tax-free gratuity amount, the Payment of Gratuity Bill, 2017 has also provided powers to the Central Government for fixing maternity leave. Under the new provisions, expectant mothers can enjoy a maternity leave period of 26 weeks and the period of maternity leave would be deemed to be in continuous service.

A copy of the Payment of Gratuity Bill, 2017 is reproduced below for reference:

Payment of Gratuity Bill, 2017

Other Related Guides

Form 10G Form 10G - Income Tax Application for grant of approval or continuance thereof to institution or fund under section 80G(5)(vi) of the Income -tax Act...
Form 3CJ Form 3CJ - Income Tax Report to be submitted by the prescribed authority to the Director General (Income-tax Exemptions) after approval of scientific...
Income Tax Assessment Income Tax Assessment At the end of each financial year, all persons and entities required to file an income tax return by self-computing the amount ...
Service of Income Tax Notice Service of Income Tax Notice The Income Tax Act, 1961 allows the service of a notice, summon, order or any other communication by delivering or trans...
Form 15H Form 15H - Income Tax Declaration under section  197A(1 C), to be made by an individual who is of the age of sixty years or more claiming certain inc...

You must be logged in to post a comment.

User

Hi there,

Online We are available online!