1) Gratuity is a benefit received by an employee for services rendered to an organisation. For companies covered under the Gratuity Act, this benefit is paid when an employee completes five or more years of service with the employer.

 

2) The Gratuity Amendment Bill seeks to make formal sector workers eligible for up to Rs 20 lakh tax-free gratuity.

 

3) The Gratuity Act applies to establishments employing 10 or more persons.

 

4) The main purpose for enacting this Act is to provide social security to workers after retirement, whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body.

 

5) "Considering the inflation and wage increase even in case of employees engaged in private sector, the government is of the view that the entitlement of gratuity should be revised for employees who are covered under the Payment of Gratuity Act, 1972," the government statement said.

 

6) According to the current formula for formal sector workers, the gratuity amount depends upon the tenure of service and last drawn salary. It is calculated according to this formula: Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26. According to this formula, the time period of over six months or more is considered as one year. This means if you have completed five years and seven months of service, the number of years would be considered as six years for calculation of gratuity benefit. On the other hand, if the service period is five years and five months, for gratuity calculation it will be considered as five years.

 

7) An employer can however give higher gratuity than the amount under the prescribed formula.

 

8) The move to amend gratuity rules for formal sector workers comes after limit for central government employees was hiked to Rs 20 lakh, according to 7th pay commission's recommendations.

 

9) The relevant amendment for central government employees was notified on July 25, 2016 and the enhanced ceiling amount was made effective from January 1, 2016.

 

 

10) In another decision, the Union Cabinet today approved the release of additional 1 per cent dearness allowance (DA) for about 50 lakh Central government employees.