New Delhi, January 6
The Centre is proposing to raise the ceiling for payment of gratuity for private sector employees from Rs 3.5 lakh to Rs 10 lakh. The proposal is to be placed before the Union Cabinet for its approval at its meeting tomorrow.
The move, which has been in the pipeline for several months, follows the Sixth Pay Commission recommendation that has raised the limit for Central government employees. Once the Cabinet approves the Labour Ministry’s proposal tomorrow, it will bring parity between
the government and private sector employees.
Sources said there had been a spate of representatives from the private sector demanding such an extension in the gratuity payment after the Centre had changed the rules for the government employees. The matter had been under consideration, as the Labour Ministry first elicited the views of the stakeholders concerned.
The trade unions and other representatives of employees, it is learnt, had gone as far as to suggest that there should be no ceiling
on the payment of gratuity. However, the Centre decided to put the private sector and the government employees at par by fixing the upper limit at Rs10 lakh as it was felt that such a drastic move would place a financial burden on the employers.
The Payment of Gratuity Act, 1972, applies to factories and other establishments employing 10 or more persons. The employees are entitled to payment of gratuity on completion of 10 years in service at the rate of 15-day wages for each year of service or part of it in excess of six months subject to maximum Rs 3,50,000.
Since the gratuity is considered an income, an employee has to pay taxes on it. However, gratuity up to Rs 3,50,000 is exempted from tax under the provisions of Section 10(10) of the Income Tax Act, 1961.
In the last Parliament session, the Centre had amended the Gratuity Act to clarity the
definition of an employee. According to the new law, anybody who is earning a wage is characterised as an employee and is liable to receive gratuity.
