Dearness Allowance was hiked to 50% in March 2024, consequent to which Gratuity ceiling is automatically hiked
7th Pay Commission DA Hike: Retirement fund body Employees’ Provident Fund Organisation (EPFO) has announced to keep in hold its previous circular on the hike on retirement gratuity and death gratuity by 25 per cent consequent to the hike in Dearness Allowance (DA).
The maximum retirement benefit and death benefit were increased by 25 per cent, from Rs 20 lakh to Rs 25 lakh, according to an order released on April 30, 2024 by the EPFO last month.
A week later, on May 7, the retirement fund organisation released another circular saying that, effective immediately, the gratuity augmentation due to the rise in DA has been placed on hold. The decision’s rationale has not been stated in the order.
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According to the Ministry of Labour & Employment circular dated May 7, 2024. “The circular number HRD-1/8/2024/Misc-Circulars-Part(1)/1004 dated 30.4.2024 is kept in abeyance with immediate effect.”
According to the Office Order dated Ministry of Labour and Employment, Govt of India dated April 30, 2024, “As per para 6.2 of the OM no. 38/3712016-P&PW(A)(1) dated 04.08.2016 issued by Deartment of Pension and Pensioners’ Welfare, Ministry of Personnel, Public Grievances and Pensions, Government of India, the maximum limit of Retirement gratuity and death gratuity shall be increased by 25% whenever the dearness allowance rises by 50% of the basic pay. Accordingly, the maximum limit of Retirement gratuity and death gratuity shall be increased by 25% to Rs. 25 Lakh from existing Rs 20 Lakh on account of revision of Dearness Allowance payable to Central Government Employees to 50% of the basic pay w.e.f 1.01.2024, subject to other conditions mentioned in the DoP&PWOM dated 04.08.2016.”
Earlier, an office order from the Ministry of Labour and Employment, Govt of India, issued on April 30, 2024 had said, “As per para 6.2 of the OM no. 38/3712016-P&PW(A)(1) dated 04.08.2016 issued by Department of Pension and Pensioners’ Welfare, Ministry of Personnel, Public Grievances and Pensions, Government of India, the maximum limit of retirement gratuity and death gratuity shall be increased by 25% whenever the dearness allowance rises by 50% of the basic pay,”
Accordingly, the maximum limit of retirement gratuity and death gratuity shall be increased by 25 per cent to Rs 25 lakh from the existing Rs 20 lakh on account of the revision of dearness allowance payable to central government employees to 50 per cent of the basic pay, it said.
Rules say, when the DA hits a 50 percent ceiling, gratuity limit and other allowances are automatically revised. With the last DA hike, it was expected that the rules and formula of automatic revision of gratuity will kick in, however, with the latest EPFO circular, it is apparent that the government has no proposal in its kitty at the moment.
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DA Hiked To 50 Per cent In March 2024
The Union Cabinet on March 7 approved to release an additional instalment of Dearness Allowance (DA) to Central Government employees and Dearness Relief (DR) to pensioners w.e.f. 1.1.2024 representing an increase of 4 per cent over the existing rate of 46% of the Basic Pay/Pension, to compensate against price rise. With the increase in DA, transport allowance, canteen allowance, and deputation allowance among others were also increased by 25 per cent
The combined impact on the exchequer on account of both Dearness Allowance and Dearness Relief would be Rs.12,868.72 crore per annum. This will benefit about 49.18 lakh Central Government employees and 67.95 lakh pensioners, said an official release.
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What is gratuity?
Gratuity is a defined benefit plan given by the employer to the employee for rendering services continuously for five years or more.
According to the Payment of Gratuity Act, 1972, an employee can receive gratuity if he has rendered continuous service for at least five years with an organisation. This gratuity is payable to the employee:
a) On his superannuation, or
b) On his retirement or resignation
However, there is an exception where the condition of working continuously for five years with an organisation is not applicable.
