Gratuity is paid to formal sector employees after their continuous service of 5 or more years with an organization with an intent to serve them monetarily after they retire. The amount can be claimed at the time of leaving job or at superannuation. In the upcoming budget session which will commence later this month, the Payment of Gratuity Amendment Bill 2017 is expected to be passed and with it employees shall become eligible for a tax-free gratuity payment of upto Rs. 20 lakh from the current ceiling of Rs. 10 lakh reported PTI.

The agency reported that "The government wants to provide tax-free gratuity of Rs. 20 lakh to organised sector workers at par with Central government".

It is to be noted that gratuity as per the Payment of Gratuity Act, 1972 rules stand valid for all organizations that employee 10 or more staff.

Few important points to note in respect of gratuity

The Cabinet chaired by Prime Minister Modi approved the introduction of the Payment of Gratuity (Amendment) Bill, 2017 in September last year. As per the recommendation of the 7th Pay Commission, gratuity limit for central government employees has already been hiked to Rs. 20 lakh wef January 1, 2016. And with the passage of this proposed bill, the government aims to bring parity to private sector and PSU or autonomous set-up employees as well by hiking the current tax-free gratuity amount to Rs. 20 lakh.

The bill was introduced in the winter session of the Parliament in Lok Sabha last month.

For computing gratuity amount, last drawn salary as well as years of service is taken into account.

Also, employer can offer gratuity amount more than arrived at using the prescribed mathematical formula.

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