Prospective gratuity ceiling amendment leaves earlier retirement payments outside the higher tax exemption limit.

Enhanced gratuity under the Payment of Gratuity (Amendment) Act, 2010 operated prospectively from the notified commencement date, because the amendment contained no express retrospectivity and none was necessarily implied. A cut-off date for a one-time retirement benefit was therefore valid, even though earlier retirees were excluded from the higher ceiling. The exemption for gratuity in income tax applies only to gratuity received within the statutory ceiling under the Gratuity Act, so gratuity paid before commencement did not qualify for exemption beyond that limit and tax deduction at source was sustained.

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Issues: Whether the enhanced gratuity ceiling introduced by the Payment of Gratuity (Amendment) Act, 2010 could be treated as retrospective from 1 January 2007 so as to exempt gratuity paid earlier from tax deduction at source.

Analysis: The higher gratuity limit became operative only when the Central Government appointed the commencement date under the amending Act. The amendment was not expressed to operate retrospectively and no necessary implication for retrospectivity arose. Gratuity is a one-time payment on retirement, unlike recurring pension benefits, so a cut-off date for the enhanced ceiling could validly be fixed. The earlier office memorandum could confer better gratuity terms under the Gratuity Act, but the exemption in the Income-tax Act extends only to gratuity received under the statutory ceiling applicable under Section 4 of the Gratuity Act.

Conclusion: The amendment was prospective from 24 May 2010 and the gratuity paid earlier did not qualify for exemption beyond the statutory limit. The challenge failed.

Final Conclusion: The enhanced gratuity ceiling could not be given retrospective effect, and the tax deduction made on the gratuity amount paid before commencement was sustained.

Ratio Decidendi: A statutory enhancement of gratuity that comes into force on a notified commencement date operates prospectively unless retrospectivity is expressly provided or necessarily implied, and a cut-off date for a one-time retirement benefit is not arbitrary merely because it excludes earlier retirees.

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