Confused About Gratuity Limits for PSU Employees After 6th Pay Commission? Let's Clarify!

I came to know that though PSU employees are now entitled to an enhanced limit of 10 lakhs as announced by the 6th Pay Commission, the IT Act 2009 (Budget 2009-10) has only allowed Central Government employees a higher limit of tax exemption up to 10 lakhs. PSU employees have been debarred from availing this benefit. Please clarify this lacuna and any remedial action. Thanks.

Dear Chawla2010,

CPSU executives are eligible for enhanced gratuity up to a maximum of Rs. 10 lakhs with effect from 01.01.2007 as per DPE guidelines dated 26.11.2008. However, as far as taxability is concerned, it would be taxable beyond Rs. 3.5 lakhs. This is because as per Section 10(10)(ii) of Chapter Three of the Income Tax Act, 1961, gratuity payable to employees covered under the Payment of Gratuity Act, 1972, is exempt from income tax subject to the provisions of subsections 2 and 3 of Section 4. Subsection 2 gives the rate of calculation of gratuity, and subsection 3 gives the maximum limit of payable gratuity as Rs. 3.5 lakhs. Unless Subsection 3 of Section 4 of the Payment of Gratuity Act, 1972, is amended and the ceiling enhanced to Rs. 10 lakhs, the same position will continue.

As far as Central Government employees are concerned, they are paid Death-cum-retirement Gratuity, which is also enhanced to a maximum of Rs. 10 lakhs with effect from 01.01.2006. It is governed by 10(10)(i) of Chapter Three of the Income Tax Act, 2009. As per that section, the total amount is exempt from Income Tax. However, the employees of those PSUs whose gratuity was enhanced to Rs. 10 lakhs are representing before the concerned ministries to amend the Payment of Gratuity Act, 1972, enhancing the maximum limit of payable gratuity to Rs. 10 lakhs under subsection 3 of Section 4 so that income tax exemption up to Rs. 10 lakhs becomes automatically applicable.

Hi, how are you, sir? I want to get data or information on the 6th Pay Commission. If anyone has it, could you please provide it to me? Thank you.

Hi, how are you, sir? I want information on the 6th Pay Commission. If you have it, please provide it to me. Thank you.

Dear CHAWLA2010,

It appears that a proposal for the enhancement of the maximum gratuity payable under subsection (3) of Section 4 of the Payment Of Gratuity Act, 1972 to Rs. 10 lakhs has been approved by the Ministry Of Labour, GOI. The opinion of all the State Govts was sought by the Ministry. It appears that most of the State Govts have either agreed or supported the proposal. The opinion of all CPSUs was also sought. The proposal in the form of a Bill is likely to be placed before the winter session of Parliament. Whether it will have a retrospective effect or prospective effect is not clear. Earlier, amendments were prospective only.

Dear Mr. DUSTUGUGUL, As Lok Sabha and Rajya Sabha have both cleared the Gratuity Amendment Bill 2010 to amend subsections 2 and 3 of section 4 for raising the eligibility and exemption limit to 10 lakh. However, the language of the bill states that "it shall come into force on such date as the central government may, by notification in the official gazette, appoint." Hence, as per the language of the bill, it will not be effective retrospectively. Please clarify, as you mentioned earlier, that DPE, by its circular dated 26/11/2008, has raised the eligibility limit to 10 lakh with effect from 01/01/2007 for PSU.

After notification (if it is dated e.g., 01/05/2010), will PSU pay the difference of gratuity to its retired employees? If it will be paid, will there be a tax deduction or not?

Thank you.

Dear Seniors,

Namaste. I retired from the services of the Food Corporation of India, a Central PSU. There are two patterns of pay scales in the said Food Corporation of India. One is the Industrial Dearness Allowance (IDA) pattern, and the other is the Central Dearness Allowance (CDA) pattern. The FCI has allowed gratuity to its executives and category III, IV employees in IDA pay scales at Rs. 10 lakh from 01/01/2007 to 23/05/2010 (from 24/05/2010, the new gratuity amendment act has come into force and is applicable to all). However, the FCI refuses to pay gratuity at Rs. 10 lakh to CDA pattern executives and category III, IV employees for the same period.

Criteria for Discrimination

Will some senior please explain the criteria for this discrimination? Can the FCI discriminate between IDA and CDA pattern employees when both sets of employees are governed by the same Payment of Gratuity Act, 1972? I retired on 30/06/2007. I was governed by CDA pay scales. I have been paid gratuity amounting to Rs. 3.50 lakh. My fellow Managers in the IDA pattern have been paid the difference up to Rs. 10 lakh after the deduction of income tax beyond Rs. 3.50 lakh. This benefit is denied to CDA-based employees.

Guidance Needed

Some senior may please guide me on the matter so that I can take up the issue with the concerned authorities or the court of law if necessary.

Regards,
S. B. Agrawal of Pune

Email ID: [Email Removed For Privacy Reasons]

Subject: Payment of Gratuity to CDA-Based Executives and Employees of Central PSEs Retired between 01-01-2007 to 23-05-2010

There is very good news for executives and employees of central public enterprises who were governed by the central dearness allowance pattern and retired between 01-01-2007 and 23-05-2010. They have been clamoring for payment of gratuity over and above Rs. 3.50 lakh, at par with their IDA-based counterparts. The Department of Public Enterprises issued an Office Memorandum on 10th August 2009 to all central PSEs, instructing them to treat the promotion of their employees as an appointment and allowing CDA-based employees to switch over to the IDA pattern from 01-01-1989 onwards.

Aggrieved employees are urged to take up the matter with their respective employer corporations for a switch from the CDA to IDA pattern from 01-01-1989 or a later applicable date in individual cases. Once their pay pattern is modified, they would automatically become eligible for gratuity payments exceeding Rs. 3.50 lakh (up to Rs. 10 lakhs) for the period between 01-01-2007 and 23-05-2010, subject to tax liability beyond Rs. 3.50 lakh. They would also receive arrears of pay and allowances under the IDA pattern.

The DPE OM dated 10-08-2009 is accessible on the DPE website. For a PDF copy, please contact me at [Email Removed For Privacy Reasons], and I will gladly provide it. The Food Corporation of India initially hesitated to implement the aforementioned DPE OM. They communicated to the parent ministry their willingness to adhere to the DPE directive for existing employees only, excluding retired or deceased employees, from a prospective date rather than from 01-01-1989 with retrospective effect. In response, the DPE clarified that the Food Corporation of India has no such choice and must implement the guidelines from 01-01-1989 retroactively. This directive extends to other PSEs, and a copy of the DPE clarification is available upon request.

The issue remains unresolved regarding Central PSE employees who retired in 2006. While they will receive arrears of pay and allowances under the IDA pattern, they will not benefit from enhanced gratuity above Rs. 3.50 lakh. It is recommended that these individuals pursue legal action, citing the Supreme Court of India's decision in the 1982 case of D. S. Nakara and Others Versus Union of India (available online).

Regards,
Shyam Agrawal of Pune

Dear Shri SB Agarwal,

Can you please mail the DPE OM dated 10-08-2009 for reference.

GLN (G. Laxminarasimhulu)

Certainly, sir. In fact, I was expecting your email ID, which I have lost inadvertently. The DPE OM dated 10th August 2009 is reproduced below:

Certainly, Sir. In fact, I was expecting an email from you because I inadvertently lost your email ID last month. I have uploaded the DPE OM dated 10-08-2009 in the manage attachment box below. If you want copies of the replies sent by the Food Corporation of India and the DPE rejoinder, please write to me on my personal email ID: [Email Removed For Privacy Reasons].

Thanks and regards,

S. B. Agrawal of Pune

Ceiling Limit for CPSU Employees Post-1.1.2007

How is the ceiling limit applied for CPSU employees who retired or resigned after 1.1.2007, the effective date for the new salary package? Each CPSU seems to be following its own rule. Is there any government directive on this? Will this IDA pattern be beneficial to an employee compared to CDA or VDA followed in CPSU?

I took VRS on the date of 30.12.2006 and was working in a PSU on the CDA pay scale. I received a gratuity of Rs 3.5 lakhs only, whereas the 6th pay commission recommended the gratuity up to 10 lakhs. Could you please advise me on whether I am eligible to receive the arrears of my gratuity, which amounts to Rs 6.5 lakhs? If so, kindly guide me on the process to obtain the same.

Regards,
K.M. Singh