THE PAYMENT OF GRATUITY (AMENDMENT) BILL, 2018

THE PAYMENT OF GRATUITY (AMENDMENT) BILL, 2018

 
The Parliament passed the Payment of Gratuity (Amendment) Bill, 2018 as
on 22-03-2018. The Bill seeks to double the ceiling of tax-free gratuity to Rs 20
lakh. Passage of the said Bill will hugely benefit the middle and senior management
employees who are getting higher salaries. With the ceiling on gratuity being
raised, they will receive a higher gratuity amount as tax-free compensation,
at par with central government employees, which is Rs 20 lakh. A person who
retires with a salary of Rs 10 lakh p.a. needs to work for about 41 years to
reach the revised limit of Rs 20 lakh. Similarly, a person whose annual
salary is Rs 20 lakh at the time of retirement will achieve the Rs 20 lakh
gratuity limit in about 20 years of service.
 
In addition, the Bill also envisages to amend the provisions relating to calculation
of continuous service for the purpose of gratuity in case of female employees
who are on maternity leave from ‘twelve weeks’ to such period as may be
notified by the central government from time to time.
 
After enactment of the Act, the power to notify the ceiling of the amount
of gratuity under the Payment of Gratuity Act, 1972 shall stand delegated to
the central government so that the limit can be revised from time to time
keeping in view the increase in wage and inflation and future pay commissions.
 
STATEMENT OF OBJECTS AND REASONS
1. The Payment of Gratuity Act, 1972 (the Act) was enacted to provide for
a scheme for the payment of gratuity to employees engaged in factories,
mines, oilfields, plantations, ports, railway companies, shops or other
establishments who have rendered a minimum five years of continuous service
with the establishment employing ten or more persons. The calculation of
gratuity amount is based on a formula, which is fifteen days of wages for
each year of completed service, subject to a ceiling. The present ceiling,
as provided under Section 4 of the Act is rupees ten lakhs which was fixed in
the year 2010.
 
2. The period of twelve weeks of maximum maternity leave presently provided
in Section 2A of the Act for the purpose of calculating continuous service under
the Act is on the basis of period of maximum maternity leave as provided in the
Maternity Benefit Act, 1961. The maximum maternity leave under the Maternity
Benefit Act, 1961 has been enhanced from twelve weeks to twenty-six
weeks by the Maternity Benefit (Amendment) Act, 2017. It is therefore
proposed to empower the Central Government to enhance the period of existing
twelve weeks to such period as may be notified by it.
 
3. The provisions contained in the Central Civil Services (Pension) Rules,
1972 for Central Government employees with regard to gratuity are similar
to the provisions contained in the Act. After implementation of the 7th Central
Pay Commission, the ceiling of gratuity for Central Government employees has
been enhanced from rupees ten lakhs to rupees twenty lakhs. In the past, the
ceiling amount of gratuity under the Act has followed the Central Pay Commission
recommendations. Therefore, considering the inflation and wage increase even in
case of employees engaged in private and public sector, the entitlement of gratuity
is also required to be revised for employees who are covered under the Act.
It has also been proposed to empower the Central Government to notify the
ceiling proposed, instead of amending the said Act, so that the limit can be revised
from time to time keeping in view the increase in wage and inflation, and future Pay
Commissions.
 
4. The Payment of Gratuity (Amendment) Bill, 2017, inter alia, proposes to amend—
(a) Section 2A of the Act so as to empower the Central Government to notify the
period of maternity leave in case of female employee as deemed to be in continuous
service in place of existing twelve weeks;
(b) Section 4 of the Act to substitute the words “ten lakh rupees” with the
words” such amount as may be notified by the Central Government from time to time”.
 
5. The Bill seeks to achieve the above objects.
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