Parliament to Consider Bill Raising Income Tax Exemption limit of Gratuity in Monsoon Session

Parliament is likely to consider the bill raising exemption limit of gratuity under the Income Tax Act in its monsoon session started today.

The Bill aims at doubling the ceiling for tax exempt gratuities from the current Rs 10 lakh to Rs 20 lakh. Earlier in February, the central trade unions had agreed on the proposal in a tripartite consultation with the labour ministry. However, the unions had demanded the removal of conditions asking to have at least 10 employees in an establishment and minimum five years of service for payment of gratuity.

Earlier, Labour Minister Bandaru Dattatreya had made a statement confirming this.

Besides, the bill to amend the Payment of Gratuity Act also seeks to enable the central government to change the ceiling for tax-free gratuity after factoring in rise in income levels by an executive order bypassing Parliament route to amend the law.

Though the decision in this regard was taken by the Union Cabinet in March, it has not been scrutinised and approved the draft bill yet.

At present, as per the Payment of Gratuity Act, an employee is required to do minimum service of five years to become eligible for gratuity amount. Moreover, the Act applies to those establishments where the number of employees is not less than 10.

Trade unions had demanded that the amended provision regarding maximum amount should be made effective from January 1, 2016, as done in the case of central government employees.

Besides, that rate of 15 days wages for each completed year of service be raised to 30 days wages, the unions had said during the tripartite meeting.

The proposed amendment to the Payment of Gratuity Act as circulated by the government only deals with enhancing the ceiling of maximum amount under Section 4(3) of the Act from Rs 10 lakh to Rs 20 lakh.

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