New Delhi, Sept. 12: The Centre today decided to raise the tax-free limit on the payment of gratuity to retiring private sector employees to Rs 20 lakh - bringing it on a par with the ceiling for civil servants and public sector employees.
The Union cabinet has approved an amendment to the Payment of Gratuity Act that will have to be passed by Parliament.
The tax-free gratuity ceiling was raised for government employees from January 1, 2016, after the implementation of the Seventh Central Pay Commission award.
The Payment of Gratuity Act, 1972, applies to establishments employing 10 or more persons. The payout is recognised as an important social security benefit.
The present upper ceiling on the gratuity amount under the Act is Rs 10 lakh.
Companies have the option of paying a higher gratuity amount but the excess above the tax-free ceiling is taxable at the relevant marginal tax rate. Very few employees get more than the tax-free ceiling.
The Union cabinet also approved the release of an additional 1 per cent dearness allowance to central government employees and dearness relief to pensioners from July 1, 2017.