Saturday, May 22, 2010

Payment of Gratuity (Amendment) Act, 2010 limit Rs.3.5 lakhs to Rs 10 lakhs


on Saturday, May 22, 2010

Update(20.05.2010) :Gratuity Bill ,2010 is now notified as under.
Update :Govt has enhanced the exemption limit for psu employees retired after 24.05.2010 read more from here . .
Update 



Gratuity Amount payable under Payment of Gratuity Act enhanced from Rs.3.5 lakhs to Rs 10 lakhs

Payment of Gratuity (Amendment) Act, 2010 (No. 15 of 2010), dated 17-5-2010

An Act further to amend the Payment of Gratuity Act, 1972.

Be it enacted by Parliament in the Sixty-first Year of the Republic of India as follows:-

Short title and commencement.


  1. (1) This Act may be called the Payment of Gratuity (Amendment) Act, 2010.
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
Amendment of section 4 of Act 39 of 1972.

2. In section 4 of the Payment of Gratuity Act, 1972, in sub-section (3), for the words “three lakhs and fifty thousand rupees”, the words “ten lakh rupees” shall be substituted.




In a move that will provide relief to the salaried class, the Union cabinet on Thursday(04.03.2010) gave its consent for enhancing the gratuity limit at the time of retirement to Rs 10 lakh.

The government will bring an amendment to the gratuity Act by tabling a fresh bill in the current session of Parliament in the coming days.

The move comes after several representations by employees' groups. They had asked for a removal of gratuity ceiling.

The current enhancement is way above the current limit of Rs 3.5 lakh, sources said. It will provide relief to employees at retirement.

Often, central and state government staff with high incomes did not get the full amount accrued in gratuity.

With the enhancement of the limit, they will get more benefits at the time of retirement.

Employees expected the benefit to be announced in the budget. But with the UPA government bringing a new bill in the same session, the concerns will be addressed.

Whether Income Tax Limit In respect of gratuity Increased?


After reading above news ,First response of all person is that "whether Income tax limit 3.5 Lakh about gratuity Increased or not?
Before Answering the question ,I will explain you the provision about Gratuity as per Income Tax act.

As per Income Tax act ,Section 10(10),employees has been divided in three categorise.
  1. Employee of Central/State Government and Local bodies :Gratuity received by these employees is fully exempted  without any limit.
  2. Employee covered under Payment of Gratuity Act:Amount as per Gratuity Act is fully exempted .Means Income Tax has not defined /set any Limit for such employees.Means as soon as the amount of Gratuity Act ,enhanced by the Cabinet as proposed ,Income tax Limit will also enhanced.As the income Tax act only refer the Payment of gratuity act .
  3. Other employee:For other remaining employee Limit is defined under the Income Tax act ,which is at present 3,50000.But many PSU ,which is not covered under the Sate or Central Govt definition as per sr number 1 and 2 above ,has started to pay ,gratuity as per Sixth pay commission ,maximum up to 10 lakh .So amount in excess of 3.5 lakh is taxable in hand of such employees .In case of Limit is enhanced in Payment of Gratuity Act as per sr number 2  even then separate notification under this sub clause[10(10)(iii)} is required .The Limit is related to date of retirement /resignation and not to date of receipt .Update :Govt has enhanced the exemption limit for psu employees retired after 24.05.2010 read more from here . .
    Update 


Suppose :A person has retired on 28.2.2010 and received gratuity amount on 15.04.2010 ,Limit is enhanced from 01.04.2010.In this case person can not avail enhanced Limit .

The Good news is here that in past ,every time ,Govt has raised this limit with retrospective effect .Increase In Limit old History(recent three) is Given Below.
  1. Exemption limit raised from Rs. 2,50,000 to Rs. 3,50,000 in relation to employees who retireterminated/resigned or become incapacitated prior to such retirement or die on or after 24-9-1997(date of Notification 20.1.1999-No. 10772 [F. No. 200/77/97-IT(A-I)] 
  2. Exemption limit of Rs.1,00,000 raised to Rs. 2,50,000 in relation to employees who retire/terminated/resigned or become incapacitated prior to such retirement or die on or after 1-4-1995 ( Notification : No. SO 394, dated 1-2-1996.)
  3. Exemption limit in relation to employees who retire or become incapacitated prior to such retirement or die, on or after 1-4-1988, or whose employment is terminated on or after 1-4-1988 (Notification: No. GSR 405, dated 28-4-1988.)

Further section 10(10)(iii) says that Limit under this sub clause should be notified in accordance with limit applicable to central Govt. employees.So later or sooner the Limit Under This section will also be raised to 10 Lakh .and I wish that limit will be increased from retrospection effect from 01.01.2006.

so answer is that presently limit is not enhanced for "other employee" categorise

However employee can claim relief under section 89(1) on taxable gratuity amount .The method to calculate 89(1) relief for gratuity is different From normal 89(1) method applicable for salary received in Arrears or Advance .I will deal this issue separately in coming posts.Further Bifurcation of arrears of 6th pay commission or other arrears can now be done easily with calculator provided by simple tax India ,check here





89(1) relief calculator To bifurcate arrears received in 2009-10 FY or 2008-09

Section 10(10) is reproduced hereunder.
section10(10) (i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services ;
(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act ;
(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government :
Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause shall not exceed the limit so specified