Tax Free Gratuity Limit Doubled, Should You Be Happy?

Even after the relentless protests and disrupted proceedings by the opposition party, NDA today passed the amended Gratuity bill without a debate and amid the din. The bill notifies that the ceiling of tax- free gratuity would be raised from existing Rs 10 lakh to 20 lakh for an employee covered under the Payment of Gratuity Act.

The bill has also brought changes in the maternity leave (now the government can fix the period of leave as deemed to be in continuous employment in place of the present 12 weeks) under its ambit.

Who will benefit from Gratuity Limit Increase?

Gratuity is an incentive to an employee for his loyalty towards the employer as the gratuity is paid to the employees who work for any employer for minimum 5 years. Gratuity is calculated on the basis of last salary drawn by employee before retirement/resignation. Employee is entitled to 15 days salary for each completed year of service i.e. minimum five.

Employers these days also mention the gratuity amount in the offer letter itself as part of CTC i.e Cost to Company.

For Example you work for an organisation for 10 years and your last monthly salary was Rs. 50,000 then you are entitled to a tax free gratuity bonus of Rs. 250,000 at the time of leaving the organisation.

It is believed that the proposed increased tax-exempt gratuity limit will immediately benefit those employees whose salary exceeds 70,000 a month. However, if you are a young employee and has years to retire then this amended bill would turn out to be a boon. All you have to make sure is to have an employment term of atleast 5 years with the employer.

With the passage of this bill, the organized workers will be at par with the Central government employees.  The Labor Minister Santosh Kumar Gangwar, call it’s an important legislation for the employees, especially woman.