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What is the amendment about?

The Union Cabinet chaired by the Prime Minister Narendra Modi has given its approval for the introduction of the Payment of (Amendment) Bill, 2017 in the Parliament.

The Payment of Gratuity (Amendment) Bill, 2017 seeks to amend the Payment of Gratuity Act, 1972, which applies to establishments employing 10 or more persons.

The Amendment will increase the maximum limit of gratuity of employees in the private sector, Public Sector Undertakings/Autonomous Organizations under the government who are not covered under CCS (Pension) Rules, at par with Central Government employees.

Accordingly, the gratuity withdrawal limit for staff in private companies and public-sector units has been doubled to Rs20 lakh.

At present, even if a worker accumulates more than Rs10 lakh as gratuity contribution, the withdrawal is capped at Rs10 lakh and the rest is paid out after deduction of taxes.

What is gratuity?

Simply put, it’s a lump-sum payment given by the employer.

The main purpose of gratuity is to provide social security to workmen after retirement, whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body. In case of death of the employee, his/her nominee gets the benefit.

Any company that employs 10 people or more in the preceding 12 months should give this benefit. It includes both commercial and non-commercial establishments like educational institutes.

It is a ‘defined benefit’ plan, which means that the employee knows the gratuity amount in advance.

It largely depends on two things, the tenure of service and last drawn salary.

To be a beneficiary, the employee should have completed at five of continuous service at the company.