As per Gazette notification issued by Ministry of Law & Justice in The Gazette of India on dated 29th March 2018 as applicable WEF same date for the following amendments in the Payment of Gratuity Act, 1972 and summary is as:
1. In section 4 of the principal Act, in sub-section (3), for the words "ten lakh rupees", the words "such amount as may be notified by the Central Government from time to time" shall be substituted. As on now amount of Gratuity payable to employee shall not exceed Rupees Ten Lakh. After these amendments Central Government can issue the notification regarding the amount of maximum gratuity to be payable at any given time.
2. In section 2A of the principal Act, in sub-section (2), in the Explanation, in clause (iv), for the words "twelve weeks", the words "such period as may be notified by the Central Government from time to time" shall be substituted. As on now for the purpose of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which under clause (iv) is in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks. After these amendment Central Government can issue the notification regarding additional relaxation on ground of maternity leave that will be considered as continuous service.
From India, New Delhi
301. In section 4 of the principal Act, in sub-section (3), for the words "ten lakh rupees", the words "such amount as may be notified by the Central Government from time to time" shall be substituted. As on now amount of Gratuity payable to employee shall not exceed Rupees Ten Lakh. After these amendments Central Government can issue the notification regarding the amount of maximum gratuity to be payable at any given time.
2. In section 2A of the principal Act, in sub-section (2), in the Explanation, in clause (iv), for the words "twelve weeks", the words "such period as may be notified by the Central Government from time to time" shall be substituted. As on now for the purpose of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which under clause (iv) is in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks. After these amendment Central Government can issue the notification regarding additional relaxation on ground of maternity leave that will be considered as continuous service.
From India, New Delhi
Namaste Team,
Now I am working as a HR Executive and I have 2 year experience I completed only B.Com from mumbai university. Now I will take admission in labour law degree from 1st year but there are many subject for two year. So could I do labour law diploma it's better for my growth...pls suggest
From India, Mumbai
Now I am working as a HR Executive and I have 2 year experience I completed only B.Com from mumbai university. Now I will take admission in labour law degree from 1st year but there are many subject for two year. So could I do labour law diploma it's better for my growth...pls suggest
From India, Mumbai
Regarding Gratuity, The Ministry of Employment and labour notification dated 29th March 2018, says:
New Delhi, the 29th March, 2018
S.O. 1420 (E).—In exercise of the powers conferred by sub-section (3) of section 4 of the Payment of Gratuity
Act, 1972 (39 of 1972), the Central Government hereby specifies that the amount of gratuity payable to an employee
under the said Act shall not exceed twenty lakh rupees.
But,Section 4(5) of Payment of Gratuity Act 1972, which says:
“4(5) Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer”
This clause remains.
QUESTION 1:
Is it not discriminatory to employees who retired just before 29.3.18 as the announcement was made several months earlier?
QUESTION 2:
The Government limit was always for TAX FREE gratuity. But most companies are misinterpreting the wording of the 29.3.18 amendment and disregarding section 4(5) that remains and insisting that they cannot pay more than 10 lakhs (increased to 20 lakhs now). Is higher payment based on appointment conditions legal now?
Jayanthram
From India, Chennai
New Delhi, the 29th March, 2018
S.O. 1420 (E).—In exercise of the powers conferred by sub-section (3) of section 4 of the Payment of Gratuity
Act, 1972 (39 of 1972), the Central Government hereby specifies that the amount of gratuity payable to an employee
under the said Act shall not exceed twenty lakh rupees.
But,Section 4(5) of Payment of Gratuity Act 1972, which says:
“4(5) Nothing in this section shall affect the right of an employee to receive better terms of gratuity under any award or agreement or contract with the employer”
This clause remains.
QUESTION 1:
Is it not discriminatory to employees who retired just before 29.3.18 as the announcement was made several months earlier?
QUESTION 2:
The Government limit was always for TAX FREE gratuity. But most companies are misinterpreting the wording of the 29.3.18 amendment and disregarding section 4(5) that remains and insisting that they cannot pay more than 10 lakhs (increased to 20 lakhs now). Is higher payment based on appointment conditions legal now?
Jayanthram
From India, Chennai
Dear Jayanthram,
QUESTION 1:
Is it not discriminatory to employees who retired just before 29.3.18 as the announcement was made several months earlier?
= It's always like this only. A cut-off date to give effect to any notification is unavoidable for the simple reason that any "absence of this cutoff date" create confusion and difficult to implement. Imagine in this particular amendment which is effective from 29.3.2018 and if there is no such date indicated, which means it would apply to all past cases without any limit ie. 01/01/0001. Is't possible to implement such a notification? The question raised by you logical but also illogical to implement. There is always going to be thousands of persons affected or discriminated as you said for whatsoever the date could be. This question remains irrespective of any date.
QUESTION 2:
The Government limit was always for TAX FREE gratuity. But most companies are misinterpreting the wording of the 29.3.18 amendment and disregarding section 4(5) that remains and insisting that they cannot pay more than 10 lakhs (increased to 20 lakhs now). Is higher payment based on appointment conditions legal now?
= You are not correct. There is no gratuity which is fully 'Tax Free", without limit. An employer can pay any amount as gratuity or ex-gratia or in whatever name it may be.IT rules only recognises 'gratuity' under the Payment of Gratuity Act or Gratuity rules or Exgratia Schemes, made thereunder or 'Annuity' (as managed by fund managers) subject to the maximum of Rs.20 lakhs. The IT provisions applicable is - Maximum amount payable under the Gratuity Act, 1972:-
Gratuity payable to government employees is fully exempt, which is normally expected not more than Rs.20L. For non-government employee covered under Payment Of Gratuity Act,1972, the maximum limit for exemption is Rs 20 lakhs and for any other employees, the maximum limit of exemption is Rs 10 Lakhs. [Section 4(3)] [Of course, employer can pay more. Employee has also right to get more if obtainable under an award or contract with employer, as made clear under section 4(5)].
Tax treatment of gratuity :- For the purpose of exemption of gratuity under sec.10 (10) the employees are divided under three categories:
1. Any death cum retirement gratuity received by Central and State Govt. employees, Defense employees and employees in Local authority shall be exempt.
2. Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt subject to following limits:-
For every completed year of service or part thereof, gratuity shall be paid at the rate of fifteen days wages based on the rate of wages last drawn by the concerned employee.
The amount of gratuity as calculated above shall not exceed Rs. 20,00,000/- (Limit increased to Rs. 20 Lakh with effect from 29.03.2018, earlier limit was Rs. 10 Lakh.)
3. In case of any other employee, gratuity received shall be exempt, subject to the following exemptions
Exemption shall be limited to half month salary (based on last 10 months average) for each completed year of service or Rs. 20 Lakhs whichever is less.
Where the gratuity was received in any one or more earlier previous years also and any exemption was allowed for the same, then the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the overall limit being Rs.20 Lakhs.
As per Board’s letter F.No. 194/6/73-IT(A-1) Dated 19.06.73 exemption in respect of gratuity is permissible even in cases of termination of employment due to resignation. The taxable portion of gratuity will qualify for relief u/s 89(1).
Gratuity payment to a widow or other legal heirs of any employee who dies in active service shall be exempt from income tax subject to provisions mentioned above Circular No. 573 dated 21.08.90).
The ceiling of Rs. 20 lakhs applies to the aggregate of gratuity received from one or more employers in the same or different years.
Taxable under what head:- Gratuity received by an employee on his retirement is taxable under the head “Salary” and gratuity received by the legal heir is taxable under the head” Income from Other Sources”.
Amended provision of Sec.10(10) of IT Act.:
Section 10(10) – Gratuity Exemption
The amount received by Government employee (i.e., Central Government or State Government or local authority) for Death-cum-retirement is fully exempt.
Gratuity income received by employees who are covered under Payment of Gratuity Act, 1972 is exempt from Income tax.
Least of the below is exempt:
a) 15 day’s salary X years of services
b) Maximum amount i.e. 20 lacs
c) Amount actually received.
From India, Bangalore
QUESTION 1:
Is it not discriminatory to employees who retired just before 29.3.18 as the announcement was made several months earlier?
= It's always like this only. A cut-off date to give effect to any notification is unavoidable for the simple reason that any "absence of this cutoff date" create confusion and difficult to implement. Imagine in this particular amendment which is effective from 29.3.2018 and if there is no such date indicated, which means it would apply to all past cases without any limit ie. 01/01/0001. Is't possible to implement such a notification? The question raised by you logical but also illogical to implement. There is always going to be thousands of persons affected or discriminated as you said for whatsoever the date could be. This question remains irrespective of any date.
QUESTION 2:
The Government limit was always for TAX FREE gratuity. But most companies are misinterpreting the wording of the 29.3.18 amendment and disregarding section 4(5) that remains and insisting that they cannot pay more than 10 lakhs (increased to 20 lakhs now). Is higher payment based on appointment conditions legal now?
= You are not correct. There is no gratuity which is fully 'Tax Free", without limit. An employer can pay any amount as gratuity or ex-gratia or in whatever name it may be.IT rules only recognises 'gratuity' under the Payment of Gratuity Act or Gratuity rules or Exgratia Schemes, made thereunder or 'Annuity' (as managed by fund managers) subject to the maximum of Rs.20 lakhs. The IT provisions applicable is - Maximum amount payable under the Gratuity Act, 1972:-
Gratuity payable to government employees is fully exempt, which is normally expected not more than Rs.20L. For non-government employee covered under Payment Of Gratuity Act,1972, the maximum limit for exemption is Rs 20 lakhs and for any other employees, the maximum limit of exemption is Rs 10 Lakhs. [Section 4(3)] [Of course, employer can pay more. Employee has also right to get more if obtainable under an award or contract with employer, as made clear under section 4(5)].
Tax treatment of gratuity :- For the purpose of exemption of gratuity under sec.10 (10) the employees are divided under three categories:
1. Any death cum retirement gratuity received by Central and State Govt. employees, Defense employees and employees in Local authority shall be exempt.
2. Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt subject to following limits:-
For every completed year of service or part thereof, gratuity shall be paid at the rate of fifteen days wages based on the rate of wages last drawn by the concerned employee.
The amount of gratuity as calculated above shall not exceed Rs. 20,00,000/- (Limit increased to Rs. 20 Lakh with effect from 29.03.2018, earlier limit was Rs. 10 Lakh.)
3. In case of any other employee, gratuity received shall be exempt, subject to the following exemptions
Exemption shall be limited to half month salary (based on last 10 months average) for each completed year of service or Rs. 20 Lakhs whichever is less.
Where the gratuity was received in any one or more earlier previous years also and any exemption was allowed for the same, then the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the overall limit being Rs.20 Lakhs.
As per Board’s letter F.No. 194/6/73-IT(A-1) Dated 19.06.73 exemption in respect of gratuity is permissible even in cases of termination of employment due to resignation. The taxable portion of gratuity will qualify for relief u/s 89(1).
Gratuity payment to a widow or other legal heirs of any employee who dies in active service shall be exempt from income tax subject to provisions mentioned above Circular No. 573 dated 21.08.90).
The ceiling of Rs. 20 lakhs applies to the aggregate of gratuity received from one or more employers in the same or different years.
Taxable under what head:- Gratuity received by an employee on his retirement is taxable under the head “Salary” and gratuity received by the legal heir is taxable under the head” Income from Other Sources”.
Amended provision of Sec.10(10) of IT Act.:
Section 10(10) – Gratuity Exemption
The amount received by Government employee (i.e., Central Government or State Government or local authority) for Death-cum-retirement is fully exempt.
Gratuity income received by employees who are covered under Payment of Gratuity Act, 1972 is exempt from Income tax.
Least of the below is exempt:
a) 15 day’s salary X years of services
b) Maximum amount i.e. 20 lacs
c) Amount actually received.
From India, Bangalore
Thank you Mr.Kumar for the detailed reply.
1.You are right.Anyway, lots of people lost out because of the long delay between the announcement and actual notification of the amendment.
2. You are right here also about the taxable limit.My point was not to traet the gratuity amount fully tax free. If any contract is allowing more than 10/20 lakhs(as the case may be), there should be no bar to pay, provided tax is paid beyond 10/20 lakhs and the excess amount is called ex Gratia and not gratuity.
Thanks once again.
From India, Chennai
1.You are right.Anyway, lots of people lost out because of the long delay between the announcement and actual notification of the amendment.
2. You are right here also about the taxable limit.My point was not to traet the gratuity amount fully tax free. If any contract is allowing more than 10/20 lakhs(as the case may be), there should be no bar to pay, provided tax is paid beyond 10/20 lakhs and the excess amount is called ex Gratia and not gratuity.
Thanks once again.
From India, Chennai
2. Employers may pay any amount as 'gratuity' there is no limit. Limit is only for taxation purposes & that excess need not be re-classified as any thing else. The excess also still remains as 'gratuity' for employers, employees and others. 'Exgratia' is a term also used for 'payment in lieu' of bonus for those entities & employees to whom the Payment of Bonus Act is not applicable. Or 'compensation' under the Employees Compensation Act etc. Now a days gratuity admin is entrusted to fund managers such as LIC under which employers remit the contributions to these funds managers monthly to take care of 'gratuity' liability in respect of eligible exiting employees. This is being implemented under 'actuarial valuation' formula for those covered under the Companies Act.
From India, Bangalore
From India, Bangalore
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Payment of Gratuity Amendment Bill 2010.pdf