Introduction

The Payment of Gratuity Act, 1972 (Act) is a social security legislation which provides post‑retirement defined benefits arrangements for employees engaged in various industries, factories and establishments. Gratuity is a tax-free defined benefit that is payable when the employee exits due to resignation, superannuation, or physical disablement, etc.

Amendment

The Union Cabinet vide notification dated 12 September 2017, has approved the introduction of the Payment of Gratuity (Amendment) Bill, 2017 (Bill) in the Parliament. The Bill enhances the upper ceiling on payment of gratuity under the Act from the present limit of INR 1,000,000 (Indian Rupees One million) to INR 2,000,000 (Indian Rupees Two million).

The amendment gathers intent from the Central Civil Services (Pension) Rules, 1972 (Rules), which is a similar legislation for employees of the Central Government. The gratuity ceiling for employees of the Central Government under the Rules was increased from INR 1,000,000 (Indian Rupees One million) to INR 2,000,000 (Indian Rupees Two million) after the recommendations of the 7th Central Pay Commission effective from 1 January 2016.

Comment

The Act entitles every employee to payment of gratuity, (a) who has been in continuous service for five years or more, and (b) is employed in an establishment with ten or more employees. The Act covers the private sector workers and Public Sector Undertakings/ Autonomous Organisations which are not covered under the Rules. The amendment seeks to increase the extent of social security provided to all eligible employees.

By enhancement of the upper gratuity ceiling, the government seeks to align employee benefits in the private sector with those of Central Government employees. Further, it evinces government’s intention to consider inflation and wage increase of employees engaged in private sector.