Understanding the Gratuity Act: What Is the Current Ceiling Limit?

Now, as per the Gratuity Act, what is the ceiling limit?

There is no ceiling as per the Gratuity Act. However, the ceiling limit is in the Income Tax Act, which prescribes the maximum amount that shall not be chargeable to tax.

Nowhere do both legislations state that gratuity exceeding Rs. 3,50,000/- cannot be paid. Any amount above Rs. 3,50,000/- would be chargeable to tax in the hands of the recipient. The corporates restrict the amount payable to Rs. 3,50,000/- to save their liability on account of Gratuity.

Hi Avika,

You have made a mistake by saying there is no ceiling limit as per the Gratuity Act. The ceiling limit as per the Gratuity Act under Section 4(3) states that "THE AMOUNT OF GRATUITY PAYABLE TO AN EMPLOYEE SHALL NOT EXCEED (three lakhs and fifty thousand) RUPEES." Please refer to the said section to confirm this information and to update yourself.

Mohan Rao
Manager HR

Dear All,

If a company has set up a Gratuity Fund under a board of trustees picked from managers of the company and administered by the company-appointed manager, and the fund has a separate set of rules approved by the Income Tax authority for the benefit of the employees, the company may pay an additional amount of gratuity over and above the ceiling (Rs. 3.5 lakhs) of the Payment of Gratuity Act. However, such additional amounts are subject to Income Tax deductions.

Hi Kalyani,

As per Income Tax Rules, up to 3.5 Lakhs Gratuity benefit is exempted from any Income Tax. Any amount above 3.5 Lakhs attracts Income Tax deductions.

Mohan Rao
Manage HR