The Parliament has passed the Payment of Gratuity (Amendment) Bill, 2017 – which will benefit millions of private and public sector employees by doubling the limit of tax free gratuity to Rs 20 lakh and empowering the government to fix the ceiling of the retirement benefit through an executive order.

The much-awaited Payment of Gratuity (Amendment) Bill was finally okayed by the Rajya Sabha today, which will increase the ceiling of tax-free gratuity amount to Rs 20 lakh from Rs 10 lakh. It will also allow the government to increase the gratuity ceiling from time to time without the need to amend the law – making it easier and modifiable. This move will benefit millions of private and public sector workers and will ensure harmony between them and government employees who are covered under the pension rules. The bill will entitle private and public sector employees to receive higher amount of gratuity at par with their counterparts in Government sector.

However, the Payment of Gratuity Act, 1972 applies to establishments and companies employing 10 or more persons. The core purpose of Gratuity Bill is to provide social security to workman after retirement, whether retirement is a result of superannuation, or physical disablement or impairment of vital part of the body. With implementation of the 7th Pay Commission, the ceiling has been raised to Rs. 20 Lakhs for government employees. So to balance out the pays and gratuity rules, and also considering inflation and wage increase for employees engaged in private sector, this Government decided that the entitlement of gratuity should also be revised.

Besides the power to raise gratuity ceiling, the Bill will also empower the government to fix the period of maternity leave through executive order. The amendment to the payment of gratuity law comes in the backdrop of Maternity Benefit (Amendment) Act, 2017 enhancing the maximum maternity leave period to 26 weeks – which means, the maternity leave of 26 weeks will be considered as continuation of service for the purpose of calculating the amount of gratuity. The benchmark Bill will be applicable for employees working in any establishment, factory, mine, oil field, plantation, port, railways, company, or shop employing 10 or more workers.