Is There Really a Cap on Gratuity Payments? Seeking Clarity on My Experience

I worked in an MNC for 17 years and resigned in October 2017. Upon my exit, I was informed by HR that there is a maximum limit for paying gratuity, which is Rs. 10 lakh, and I was only paid Rs. 10 lakh even though I was eligible for more than that.

Clarification on Gratuity Payment Limits

Please clarify if there is such a limit for paying gratuity. I am not referring to income tax but rather the overall payment. I understand that the tax-free amount was Rs. 10 lakh and any amount exceeding that would be taxable, which was later revised to Rs. 20 lakh.

Please assist in clarifying this matter.

Dear Mohanarangan, as I understand it, the Central Government has raised the ceiling of gratuity under the Payment of Gratuity Act, 1972, from Rs. 10 lakh to Rs. 20 lakh with effect from 29-03-2018. For easy reference, I have provided an excerpt from the notifications issued by the Central Government below:

SR 1419(E):

In exercise of the powers conferred by subsection (2) of Section 1 of the Payment of Gratuity (Amendment) Act, 2018 (12 of 2018), the Central Government hereby appoints the 29th day of March 2018 as the date on which the said Act shall come into force.

SR 1420(E):

In exercise of the powers conferred by subsection (3) of Section 4 of the Payment of Gratuity Act, 1972 (39 of 1972), the Central Government hereby specifies that the amount of gratuity payable to an employee under the said Act shall not exceed twenty lakh Rupees.

Upon careful analysis of your post, it appears that your claim for more than the statutory maximum is based on the taxable threshold amount. However, such an argument would only hold if there is an award, agreement, or contract with the employer to receive gratuity under better terms as per Section 4(6) of the Act.

Given that you retired from service in October 2017, the legally entitled maximum amount of gratuity at the time of your retirement is Rs. 10 lakh. Even if the calculated gratuity based on your inputs exceeds Rs. 10 lakh, the employer can limit it to the statutory ceiling. Therefore, without better terms of gratuity under any award, agreement, or contract as outlined by Section 4(6) of the Payment of Gratuity Act, 1972, you are not entitled to receive more gratuity beyond the ceiling as of the date of termination of your employment.

First of all, it is "ceiling" not "sealing." Secondly, the date of applicability, as rightly pointed out for enhanced gratuity, is March 2018. The employer can pay more if their rule permits. The tax-free amount earlier was 10 lakhs, now enhanced to 20 lakhs.