Payment of Gratuity Act 1972 Current Affairs - 2020

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Social Security Code Bill introduced in Lok Sabha

On December 11, 2019, the social security code bill was introduced in Lok Sabha. The bill paves way for universalization of social security of 50 crore workers in the country.

Key Features of the bill

The bill proposes setting up of a social security fund to fulfill benefits such as medical cover, pension, death and disablement benefits including gig workers. This will help to tap the corporate social responsibility fund and divert it towards the unorganized sector.

The bill will provide options of reducing the provident fund contribution of the employees. It is currently 12% of basic salary. This will increase their take-home payment.

The bill also makes the fixed-term contract workers eligible for gratuity. Currently under the Payment of Gratuity Act, 1972, workers are not entitled to gratuity before the completion of 5 years.

The bill is completely based on the Drafts Security Code.

The bill intends to merge 8 laws and to support the unorganized workers as that mentioned in the code.

Need for the bill

India leads in global gig economy contributing 24% of online labor market in the world! The data was provided by the Oxford Internet Institute. Apart from internet, being the second most populous country in the world, India has maximum number of unorganized employees.


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Income tax exemption limit on gratuity doubled to Rs 20 lakh

The government has increased the tax-free gratuity income limit to Rs 20 lakh. This move will benefit the public as well as private sector employees.

What is Gratuity?

Gratuity is the monetary benefit provided by the employer to his/her employee for the services rendered by him during the period of employment. A minimum of five years of service with an organisation is mandatory for availing the benefit of gratuity.

The Payment of Gratuity Act 1972 makes it mandatory for the employers to pay their employees gratuity at the time of quitting, provided certain conditions were met.

An organisation comes under the purview of the Payment of Gratuity Act 1972 if it has 10 or more employees on any single day in the preceding 12 months. The Payment of Gratuity Act follows the rule of ‘Once Covered, Always Covered’ which implies that that once an organisation comes under the Act, it will always remain covered even if the number of employees falls below 10.

The Ministry of Finance has now enhanced the income tax exemption for gratuity under Section 10 (10) (iii) of the Income Tax Act, 1961 to Rs 20 lakhs.


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