Gratuity Payment Dilemma: Can We Pay the Full Amount Through LIC Scheme?

Dear All Seniors,

One of my employees has retired after working for 32 years in our company. As per the gratuity calculation, an amount of Rs. 2,307,692 is payable for gratuity. We have a LIC gratuity fund scheme in place. Is there a maximum limit for gratuity?

Kindly clarify whether we can pay this amount through the LIC scheme or if only Rs. 1,000,000 is payable, which is exempted under the Income Tax Act. To the best of my knowledge, Rs. 2,307,692 is payable, but please confirm the same.

Thank you.

As per the Payment of Gratuity Act (PGA), you are liable to pay only up to ₹10 lakh, which is tax-free under the Income Tax Act. Any amount exceeding ₹10 lakh is at your sole discretion, but the amount above ₹10 lakh will be taxable.

Please refer to section 4(3) of the Gratuity Act for the limit of Gratuity Payment.

There is no limit as far as the Gratuity Act. However, it is taxable after 10 Lakhs. Do refer to The Payment of Gratuity Act.

Regards,
Kasturi

I did refer to the Gratuity Act. It very clearly states that gratuity shall not exceed Rs. Ten lakhs. You may check Section 4(3) of the Gratuity Act.

Maximum Gratuity that can be paid is Rs. 20 lakhs. If a company wants to pay more than 20 lakhs, the balance amount can be termed Ex gratia or performance bonus. As far as I can understand, the ceiling of Rs. 20 lakh applies to the aggregate of gratuity received from one or more employers in the same or different years. Beyond 20 lakhs, the amount of gratuity received is taxable.