Your tax-free gratuity could double if this new amendment is passed

A new amendment on the Payment of Gratuity Bill could see an increase of tax free gratuity to Rs. 20 lakh, which would prove a huge benefit for private and public employees.

Your tax-free gratuity could double if this new amendment is passed

The government has given a nod to introduce the Payment of Gratuity (Amendment) Bill, 2017, in Parliament. This amendment bill aims to double tax-free gratuity to Rs. 20 lakhs, which will come as a huge benefit for private and public employees.
In addition to easing some part of a retiree''''s financial burden, the move also attempts to reward honest tax payers.

What has changed?
The amendment that is to be proposed in Parliament seeks to increase gratuity payment to Rs. 20 lakhs from the current amount of Rs. 10 lakhs. Previously, the maximum amount of gratuity was just Rs. 3.5 lakhs; but that was increased in April 2010. The proposal is expected to come into effect once the Payment of Gratuity Act is in place. For now, the Cabinet has only approved of the proposal and this will be presented in the Parliament.

Related: Alternative sources of income if you don’t have a pension

What does ‘gratuity’ mean?
Gratuity is a lump-sum amount that is paid to an employee at the time of retirement, superannuation or leaving a job. Gratuity is simply a recognition of an employee’s services rendered to an organisation. It is also paid out in the event of physical disablement or in case of death, in which case the nominee gets the amount. 

Related: Why ignoring to plan for retirement can be financially damaging

Who pays it?
A company that has 10 employees or more, preceding one year should pay gratuity. Under the Payment of Gratuity Act 1972, this rules is applicable to employees of railway companies, factories, plantations, oilfields, mines, shops and entities related to them. It also applies to government jobs in all Indian states except for Jammu and Kashmir. 


What is the basic eligibility?
You should be an employee of an organization, where you have completed a minimum of 5 years in service. You should also be eligible for superannuation. This is a regular payment that an employee makes towards a pension fund. 

What is the current scenario?
At present, if an employee is paid more than Rs. 10 lakhs as gratuity, the withdrawal limit is Rs. 10 lakhs only. This means that any additional amount (over the Rs. 10 lakhs) is paid after the deduction of taxes.

Related: What is National Pension System and how it works

Apart from the Gratuity Bill amendment, the government recently announced that it would also be increasing the Dearness Allowance (DA) and Dearness relief by 1%, on the previous 4% to help them deal with increasing prices. This change will be applicable on both, basic pay and pension and is expected to benefit over 5 million employees and 6.1 million pensioners.



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