The Payment of Gratuity (Amendment) Bill, 2018

The Parliament passed the Payment of Gratuity (Amendment) Bill, 2018 as on 22-03-2018. The Bill seeks to double the ceiling of tax-free gratuity to Rs 20 lakh. Passage of the said Bill will hugely benefit the middle and senior management employees who are getting higher salaries. With the ceiling on gratuity being raised, they will receive a higher gratuity amount as tax-free compensation, at par with central government employees, which is Rs 20 lakh. A person who retires with a salary of Rs 10 lakh p.a. needs to work for about 41 years to reach the revised limit of Rs 20 lakh. Similarly, a person whose annual salary is Rs 20 lakh at the time of retirement will achieve the Rs 20 lakh gratuity limit in about 20 years of service.

In addition, the Bill also envisages to amend the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from ‘twelve weeks’ to such period as may be notified by the central government from time to time.

After enactment of the Act, the power to notify the ceiling of the amount of gratuity under the Payment of Gratuity Act, 1972 shall stand delegated to the central government so that the limit can be revised from time to time keeping in view the increase in wage and inflation and future pay commissions.

1. The Payment of Gratuity Act, 1972 (the Act) was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments who have rendered a minimum five years of continuous service with the establishment employing ten or more persons. The calculation of gratuity amount is based on a formula, which is fifteen days of wages for each year of completed service, subject to a ceiling. The present ceiling, as provided under Section 4 of the Act is rupees ten lakhs which was fixed in the year 2010.

2. The period of twelve weeks of maximum maternity leave presently provided in Section 2A of the Act for the purpose of calculating continuous service under the Act is on the basis of period of maximum maternity leave as provided in the Maternity Benefit Act, 1961. The maximum maternity leave under the Maternity Benefit Act, 1961 has been enhanced from twelve weeks to twenty-six weeks by the Maternity Benefit (Amendment) Act, 2017. It is therefore proposed to empower the Central Government to enhance the period of existing twelve weeks to such period as may be notified by it.

3. The provisions contained in the Central Civil Services (Pension) Rules, 1972 for Central Government employees with regard to gratuity are similar to the provisions contained in the Act. After implementation of the 7th Central Pay Commission, the ceiling of gratuity for Central Government employees has been enhanced from rupees ten lakhs to rupees twenty lakhs. In the past, the ceiling amount of gratuity under the Act has followed the Central Pay Commission recommendations. Therefore, considering the inflation and wage increase even in case of employees engaged in private and public sector, the entitlement of gratuity is also required to be revised for employees who are covered under the Act. It has also been proposed to empower the Central Government to notify the ceiling proposed, instead of amending the said Act, so that the limit can be revised from time to time keeping in view the increase in wage and inflation, and future Pay Commissions.

4. The Payment of Gratuity (Amendment) Bill, 2017, inter alia, proposes to amend—
(a) Section 2A of the Act so as to empower the Central Government to notify the period of maternity leave in case of female employee as deemed to be in continuous service in place of existing twelve weeks;
(b) Section 4 of the Act to substitute the words “ten lakh rupees” with the words” such amount as may be notified by the Central Government from time to time”.

5. The Bill seeks to achieve the above objects.


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