: In this article, we will discuss the Amendment of the Gratuity Act, 2018, and various details of the same. Read on to learn more!
In August 1972, the Payment of Gratuity Act was passed. Before the amendment, the Act only applied to a limited number of establishments. In the past, Section 2(E) of the Act and the conditions outlined in Section 4 of the Payment of Gratuity Act applied to those who qualified as “employees” and received gratuity. Though Having been approved by both the Lok Sabha and the Rajya Sabha, the Payment of Gratuity (Amendment) Bill, 2018, has been in effect since March 29. The Gratuity Amendment Act of 2018 is discussed along with its many components.
Before the Amendment
Businesses and other entities that have hired 10 or more people as employees are subject to the Payment of Gratuity Act of 1972. However, to be eligible for the gratuity amount, an employee must work for the required number of years, which must be at least five.The key reason for implementing the Act into effect was to provide social security to the working population and employees once they retired. Therefore, this Act is a crucial piece of social security legislation to assist the working population who are employed in businesses, factories, and other enterprises.The gratuity limit has been increased from the previous limit of INR 10 lakhs to INR 20 lakhs under the Payment of Gratuity (Amendment) Bill of 2018.
The Amendments
After taking into account several considerations, including the rise in inflation and wage-related concerns as compared to Private Sector employees, the Government determined that the claim to gratuity had to be changed with respect to the employees covered by the Act. The Payment of Gratuity Act, of 1972, has been amended by the government in the ways listed below.
Maximum Value Limit
The Act’s amendment has changed the limit for the maximum values of gratuity that may be received. The Act’s Section 4(3)’s 2010 limit on gratuities of INR 10 lakhs has been removed. It should be noted that Section 4(5) of the Act states that if an employment contract’s terms and conditions offer a higher sum as a gratuity than the Act’s limit for gratuities, the employee shall be allowed to receive that amount. To accommodate the implementation of the Seventh Central Pay Commission, this amendment in the Act has been made. As a result, the gratuity ceiling for employees of the Central Government has increased from INR 10 Lakhs to INR 20 Lakhs. The Amendment of gratuity act was written in a way that gave the Central Government the authority to notify the proposed limit rather than having the Act itself specify it. This way, the limit can be amended over time to account for pay increases, inflation, and future pay commissions.
Maternity leave
The duration of maternity leave for female employees was another key aspect that was introduced. Under Section 2A of the Act, maternity leave for women in continuous employment was granted for a duration of 12 weeks.
To keep up with the recently amended Maternity Benefits Act, the amendment has been changed so that the maternity leave time has been increased from 12 weeks to 26 weeks. The calculation of continuous service for gratuity payments for female employees who are on maternity leave will be resolved by this amendment as well.
After the Amendment
After getting presidential approval, the Ministry of Labour and Employment implemented the Payment of Gratuity (Amendment) Act of 2018. This Amendment of Gratuity Act has been started to ensure harmony among the workers in the private sector and in public sector undertakings/autonomous organisations under the government who are not covered by the CCS (Pension) Rules. Such workers would have the same rights to higher gratuities as their counterparts who are employed by the government.Employees who have worked continuously for at least five years with an organisation are eligible for gratuities, which are often provided at retirement according to a set of rules and restrictions. When an employee retires, resigns, or becomes disabled due to an accident, illness, or death, they are also entitled to receive their gratuity.
How to Calculate Gratuity Amount
The calculation formula for calculating different for two broad categories:
- Employer Covered Under Gratuity Act
- Employer Not Covered Under Gratuity Act
In the first case, employers use the following formula:
Total gratuity amount = n*b*15 / 26
Where n = number of years of providing services to a company.
b= last basic salary & dearness allowance.
If employers are not covered under this act then they calculate the payable amount based on each year’s half-month salary. Accordingly, use the following formula:
Total gratuity amount = (15 * Your last salary drawn * working tenure) / 30.
Also, as an employer, you should be aware of the following: Anything over six months should be rounded off to the next number. Similarly, round off any integer less than 6 to the closest whole number. For instance, if the length of service is 7 years and 8 months, add 8 months to the calculation. Consider your service tenure to be 7 years if it has been 7 years and 4 months.
What are the Gratuity Payment Rules?
The following are the guidelines for gratuity payments in India that you must abide by:
- Within 30 days of the date on which the gratuity is due, an eligible employee must submit a request for payment. Additionally, if you want to receive retirement or superannuation income, apply before one month has passed.
- If an application is submitted after 30 days and has a good reason, the employer cannot reject it.
- Within 15 days of receiving applications, employers must provide the payment date and amount due. Within 30 days of receiving applications, an employer must pay gratuity amounts. Employers must provide an explanation for all application rejections.
- If a nominee or legal heir demands a gratuity, the employer may request supporting documentation or a witness. From the time that the evidence is presented to him or her, he or she will accept the assertion.
- The following are the methods of gratuities: Cash, Cheque or Demand Draft
Taxation Rules for Gratuity
The following taxation rules for gratuity:
- Government Employees – Government workers (central, state, or local) are exempt from gratuity taxes.
- Private Employees – The tax exemption is valid for at least the following for employees working for an employer who is covered by the Gratuity Act:
- ₹ 20,00,000
- Actual Gratuity Amount
- Eligible Gratuity
Conclusion
After reading the above information, we hope that you now have a clear understanding of the Amendment of Gratuity Act, it’s reasoning, and why it came into existence. Vakilsearch also provides you with a gratuity calculator which you can use to calculate the gratuity amount that your organisation owes you.
Also, Read:
