Govt employees can get Rs 25 lakh as gratuity. What rules say
New Delhi, Jan 15, 2025
The increase in gratuity limits was formalised through an office memorandum issued on May 30, 2024
The gratuity limit for central government employees has been raised to Rs 25 lakh from the previous Rs 20 lakh, following the increase in the dearness allowance (DA) to 50 per cent.
This new gratuity limit is applicable from January 1, 2024. The Department of Pension & Pensioners Welfare, under the Ministry of Personnel, Public Grievances, and Pensions, announced this change in a circular issued on May 30, 2024. However, not many are aware of this limit of gratuity
Conditions for gratuity eligibility
The individual must be a full-time employee receiving wages from the organisation.
The employee must have completed at least 5 years of continuous service with the organisation.
Gratuity is also payable in the following cases, even if the 5-year condition is not met:
Resignation after completing 5 years.
Superannuation (retirement as per the employer's policy).
Disablement caused by an accident or illness.
Death of the employee (gratuity is paid to the nominee/legal heir).
Tax exemptions for government employees
Gratuity received by government employees is fully exempt from income tax under Section 10(10) (ii) of the Income Tax Act. This means that upon retirement or termination of service, government employees do not have to pay any tax on the gratuity amount they receive, up to the new limit of Rs 25 lakh. This exemption applies equally to state and central government employees as well as defense personnel.
For private sector
“Even in earlier years, when the limit was increased from 10 lakhs to 20 lakhs for government employees, there was a time lag in amendment to the Payment of Gratuity Act. Further, even after the Act was amended to incorporate the limit in 2018, the amendment to section 10(10) of Income Tax Act in regard to non-government employees was made in March 2019 i.e. after a gap of 1 year,” said Sandeep Shah, Partner at Cignas.
“We can expect the amendment to the payment of gratuity for the private sector employees soon as the enhancement of the gratuity limit for government employees is effective 1st January 2024 and going by the trend, the change should happen in near future,” Shah said.
How to claim gratuity?
Initiating the claim : The process begins when an eligible employee makes a formal request to claim gratuity by submitting an application in Form I to the employer. If the employee is unable to submit the form, their nominee or legal heir can do so.
Employer’s responsibility: Upon receiving the application, the employer is required to verify the claim. The employer must acknowledge receipt of the application and then calculate the gratuity amount payable to the employee. This should be done promptly to avoid any delays in disbursement.
Payment timeline: According to the Payment of Gratuity Act, 1972, the employer must pay the gratuity amount within 30 days from the date it becomes payable. If the employer fails to pay within this period, it is liable to pay interest on the amount from the due date until the payment date.
Dispute resolution : In cases where there is a dispute regarding the amount of gratuity or the eligibility of the employee, the matter can be taken up with the controlling authority under the Act. The employee can submit an application in Form N to the controlling authority of the respective region.
[The Business Standard]
