The Payment of Gratuity Act was enacted in August 1972. The Act only applied to a small number of establishments prior to the amendment. Previously, those who qualified as “employees” and received gratuity were subject to the provisions of Section 4 of the Payment of Gratuity Act and Section 2(E) of the Act. The Payment of Gratuity (Amendment) Bill, 2018, which has been approved by both the Lok Sabha and the Rajya Sabha, has been in effect since March 29. The many parts of the Gratuity Amendment Act of 2018 are discussed.
The Payment of Gratuity Act of 1972 applies to businesses and other entities that have hired ten or more employees prior to the amendment. However, an employee must have worked for at least five years in order to be eligible for the gratuity amount. Social security benefits for employees and the working population after retirement were the Act’s primary objective. As a result, this Act is a crucial piece of social security legislation meant to help people who work in factories, businesses, and other establishments. The Payment of Gratuity (Amendment) Bill of 2018 raised the gratuity limit from the previous INR 10 lakhs to INR 20 lakhs.
The Changes The Government decided that the claim to gratuity for employees covered by the Act needed to be changed after taking into account a number of factors, such as the rise in inflation and concerns about wages in comparison to employees working in the private sector. The government has amended the 1972 Payment of Gratuity Act in the following ways.
Maximum Value Limit
The maximum amount of gratuity that can be received has been reduced as a result of the Act’s amendment. The 2010 limit of INR 10 lakhs on gratuities in Section 4(3) of the Act has been eliminated. It is important to note that the Act states in Section 4(5) that an employee may receive a higher gratuity amount than the Act’s limit if the terms and conditions of the employment contract allow for it. This amendment to the Act has been made to accommodate the Seventh Central Pay Commission’s implementation. This has resulted in an increase to INR 20 lakhs in the maximum gratuity limit for Central Government employees. The Gratuity Amendment Act was written so that the Central Government could notify the proposed limit rather than specify it in the Act itself. The limit can be adjusted over time to take into account pay raises, inflation, and future pay commissions in this way.
Another important aspect that was introduced was the length of maternity leave for female employees. Maternity leave was granted to women in continuous employment for a period of 12 weeks under Section 2A of the Act.
The amendment has been modified to extend maternity leave from 12 to 26 weeks in accordance with the recently amended Maternity Benefits Act. This amendment will also resolve the issue of calculating continuous service for gratuity payments to female employees who are on maternity leave.
The Payment of Gratuity (Amendment) Act of 2018
This was implemented by the Ministry of Labour and Employment after receiving presidential approval. The purpose of initiating this Gratuity Act Amendment is to promote harmony among employees working in both the private and public sectors of government-owned enterprises and autonomous organizations that are not subject to the CCS (Pension) Rules. Similar to their counterparts who are employed by the government, these workers would be entitled to higher gratuities. Gratuities, which are typically given at retirement in accordance with a set of rules and restrictions, are available to employees who have worked for an organization continuously for at least five years. Employees are also entitled to their gratuity when they resign, retire, or become disabled as a result of an accident, illness, or death.
Click here to know more: How to check gratuity amount?
How to Determine the Right Gratuity Amount?
The formula for determining different for two broad categories is as follows:
Employer Covered by the Gratuity Act Employer Not Covered by the Gratuity Act In the first situation, employers employ the following formula:
The total amount is equal to n*b*15 / 26, where n is the number of years you have worked for a company.
b is the last basic salary and the stipend.
The payable amount is based on each year’s half-month salary if employers are not covered by this act. Use the following formula accordingly:
The total amount due is equal to 15 times your most recent salary divided by the length of time you have worked for the company minus 30.
Additionally, you ought to be aware of the following as an employer: The following number should be used to round off anything older than six months. In a similar manner, round any integer that is less than 6 to the nearest whole number. Add 8 months to the total, for instance, if the duration of service is 7 years and 8 months. If you have served for seven years and four months, that makes your service tenure seven years.
What are the rules for paying gratuities?
You must adhere to the following guidelines when making gratuity payments in India:
- An eligible employee must request payment within thirty days of the gratuity’s due date. In addition, if you want to receive income from retirement or superannuation, you must apply within one month.
- The employer cannot reject an application that is submitted after 30 days and for a legitimate reason.
- Employers are required to notify applicants of the due date and amount within 15 days of receiving applications.
- Employers are required to pay gratuity amounts within 30 days of receiving applications. All rejections of applications by employers must be justified.
- The employer may request supporting documentation or a witness if a nominee or legal heir demands a gratuity. He or she will accept the assertion as soon as the evidence is presented to them.
- There are a few different ways to give tips: Tax Requirements for Gratuities: Cash, Cheque, or Demand Draft The following tax requirements apply to gratuities:
- Government Employees: Central, state, and local government employees are not subject to gratuity taxes.
- Private Employees: Employees who work for an employer that is covered by the Gratuity Act are eligible for the tax exemption for at least the following:
- 20,00,000 Actual Gratuity Amount Eligible Gratuity Conclusion After reading the preceding information, we hope you now have a clear understanding of the Amendment to the Gratuity Act, its logic, and its origins.