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Gratuity is now tax-free till Rs 20 lakh

The central trade unions have approved a proposal in consultation with the Labor Ministry to raise the tax-free limit for gratuity to Rs 20 lakh. Earlier, this limit was Rs 10 lakh. The unions are also demanding changes in other rules such as the requirement to complete five years of service and the condition to have minimum 10 employees in a company, to become eligible for gratuity. The All India Trade Union Congress (AITUC) issued a statement that read, “While accepting the maximum payment limit of Rs 20 lakh as an interim measure, the unions demanded that the ceilings/ limit with respect to number of employees and years of service should be removed.”

One more key demand of trade unions is the change in the calculation criteria for gratuity. At present, gratuity is calculated based on 15 days wages for each year of completed service. The trade unions want this to be increased to 30 days wages for each completed year of service.

It may be recalled that in a circular issued by the government on February 15, 2017, only the proposed amendment to raise the tax-free limit of gratuity from Rs 10 lakh to Rs 20 lakh was listed. The meeting was called to discuss this, where the trade unions accepted the proposal to raise the tax-free limit and also put forth their other demands related to the Payment of Gratuity Act.

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