The Centre is planning to raise the ceiling for the payment of gratuity to private sector employees to Rs 10 lakh from Rs 3.5 lakh, bringing them on a par with their government peers.
The Union cabinet, scheduled to meet on Saturday, is likely to take a decision on the proposal of the labour ministry.
The move, which has been in the pipeline for several months, follows the Sixth Pay Commission’s recommendation to raise the limit for central government employees.
The cabinet’s approval will ensure equal gratuity benefits for both government and private employees.
Gratuity is a statutory benefit governed by the Payment of Gratuity Act, 1972. Under the act, an employer must pay employees a certain amount if they leave their jobs after at least five years. The sum is 15 days of salary — the base is the last drawn income — for every year of service subject to a limit of Rs 3.5 lakh.
Trade unions had been demanding a higher ceiling for the private sector. Some trade unions had also insisted against fixing any upper ceiling, but the labour ministry said this would put a burden on the employers, sources said.
The ministry had held consultations with various stakeholders on raising the ceiling, the sources said.
The gratuity act applies to factories and other establishments employing 10 or more people.
Since gratuity is an income, an employee has to pay taxes on it. However, gratuity up to Rs 3.5 lakh is exempted under the provisions of Section 10(10) of the Income Tax Act, 1961.
During the last session of Parliament, the Centre had amended the gratuity act to clarify the definition of an employee. According to the new law, anybody who is earning a wage is characterised as an employee and is liable to receiving gratuity. Teachers were brought within the ambit of the act in the last session of Parliament, providing benefit to over 60 lakh teachers.
During the budget session, the government plans to bring a comprehensive bill to broaden the scope of gratuity benefits to cover unorganised labour
New Delhi, Jan. 7:
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