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 the 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 recepient.
The corporates restrict the amount payable to Rs.3,50,000/- so as to save their liability on account of Gratuity.