New Delhi: The labour ministry on Friday stated that the income tax exemption limit on gratuity has been doubled to Rs 20 lakh from the existing Rs 10 lakh. This move will benefit employees, who are not covered by the Payment of Gratuity Act, 1972.

 In a statement, the ministry said, "Ministry of finance has enhanced the income tax exemption for gratuity under Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakh.”

Finance minister Arun Jaitley took to Twitter to announce the ministry’s decision. His tweet read, “Income tax exemption for gratuity under Section 10(10)(iii) of the Income Tax Act has been enhanced to Rs 20 lakh. This would benefit all PSU employees and other employees not covered by Payment of Gratuity Act.” 

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Labour minister Santosh Kumar Gangwar has also thanked Jaitley stating that this would benefit those employees of public sector undertakings (PSUs) and other employees not covered by the Payment of Gratuity Act.

The ceiling of gratuity amount under the act has been raised from time to time keeping in view overall economic condition and employers' capacity to pay and the salary of employees, which have been increased in private sector and in PSUs.

The latest enhancement of tax exemption limit on gratuity follows a government notification issued on March 29, last year, under which the ceiling was increased from Rs 10 lakh to Rs 20 lakh.

The Payment of Gratuity (Amendment) Bill, 2017, was passed in the Lok Sabha in March last year. This Bill seeks to amend the act. It raised issues with respect to two aspects: (i) Considering inflation and wage increase, enhancement of the amount of gratuity available to employees even for the private and public sector. (ii) Determination of the period for maternity leave, which would be eligible for qualifying as continuous service.

Gratuity is paid by an employer in appreciation of past services of an employee. However, the employee should render services for at least five years in the organisation to become eligible to receive a gratuity. It is paid at the time of retirement to the employee himself or to his legal heir in the event of death.