PAYMENT OF GRATUITY ACT, 1972 |
Introduction |
The Payment of Gratuity Act, 1972 is a social security legislation that provides for the payment of gratuity to employees in recognition of their long and meritorious service. The Act applies to all employees who work in establishments that employ ten or more employees, whether they are in the private sector, public sector, or government. 1. Maximum payable gratuity was Rs 10L now revised to 20L after 7th Pay Commission. 2. Act Extends to the whole of India. 3. The Act came into force on 16th Sept 1972. 4. Payment of Gratuity Act, 1972 was last amended on 22nd March 2018. 5. 26 Week maternity is to be included while calculating gratuity. |
Applicability of Payment of Gratuity Act, 1972 |
The Act applies to all employees who work in factories, mines, oilfields, plantations, ports, railways, shops and establishments, or educational institutions with ten or more employees employed on any day of the preceding 12 months. The Act also applies to employees who work in the Central or State Government, local authorities, or other public sector undertakings. Note: 1. If a shop or establishment to which this act has become applicable once shall continue to be governed by this act even if employed persons fall below 10. 2. The authority for disputes and other cases are Assistant Labour Commissioner (ALC) or Labour Commissioner (LC) |
Eligibility of Payment of Gratuity Act, 1972 |
| To be eligible for gratuity, an employee must have completed at least five years of continuous service with the employer. However, in the case of death or disablement of an employee, the gratuity is payable even if the employee has not completed five years of service. |
Definitions under Payment of Gratuity Act, 1972 | ||||||||||||||
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Calculation of Gratuity | |
The amount of gratuity payable to an employee is calculated as 15 days' wages for every completed year of service or part thereof in excess of six months. Wages here mean basic salary and dearness allowance. The maximum amount of gratuity that can be paid is Rs. 20 lakh.
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When, To Whom and Amount of Gratuity Payable |
Payment of Gratuity[Section 4(1)] :- The employer is required to pay the gratuity amount to the employee within 30 days from the date it becomes payable. If the gratuity amount is not paid within this period, the employee is entitled to receive interest on the amount at the rate notified by the government. NOTE: 1. Should have rendered Five (5) years of service (Continuous). 2. Superannuation, Retirement, Resignation, Death or Disablement due to accident or Disease. 3. Continuous Five (5) year service is not required where the termination of the employment of any employee is die to death or disablement. 4. Shall be payable to himself or in case of death to the nominee.
Amount of Gratuity Payable [Section 4(2)]:- Every year - 15 days accumulated every year, Maximum period counted - 33 years or 66 Half Years or 16.5 Months max salary can be given. 1 Half Year - 6 Month or if value in fraction then, Period equal to or more than 3 Months will be counted as one half year. For example:- if an employee have rendered service of 30 years 3 Months and 3 days than his number of half years will be as follows : 30 Years *2 = 60 Half years + 1 Half years Total 61 Half years = 30.5 full years For Seasonal Employee :- 7 Days accumulated every season Piece rated Employee:- Average of three month wages. Gratuity Payable to disabled Employee [Section 4(4)]:
(a)For the period preceding disablement:- On the basis of wages last drawn at the time of disablement. (b) For the period subsequent to disablement :- On the basis of wages last drawn at the time of termination of employment. |
Nomination [Section 6] |
An employee can nominate one or more family members to receive the gratuity in case of the employee's death. The nomination should be made in writing and submitted to the employer. Each employee, who has completed one (1) year of service, shall make nomination in prescribed form in duplicate within 90 days of completion of one year of service. If an employee has no family, the nomination may be made in favour of any person by if he acquires a family after, such nomination shall forthwith become invalid and the employee shall make within 90 days of acquiring family a fresh nomination. Nomination may be modified by an employee at any time. |
Penalty for non-compliance |
| If an employer fails to comply with the provisions of the Act, he may be punished with imprisonment for a term which may extend to six months, or with a fine which may extend to Rs. 10,000, or with both. |
Calculation of continuous service |
| The Act defines "continuous service" as the uninterrupted period of service of an employee in an establishment. If an employee is terminated due to misconduct, the period of interruption caused by such termination will not be counted towards continuous service. |
Payment of gratuity on termination |
| An employee who resigns, is retrenched, or is terminated due to illness or death is entitled to receive gratuity if he has completed at least five years of continuous service. If the employee has not completed five years of service, he may still be entitled to receive gratuity at the discretion of the employer. |
Time limit for claiming gratuity |
| An employee must make a claim for gratuity within 30 days of the date it becomes payable. If the claim is not made within this period, the employer may refuse to pay the gratuity. |
Payment of interest |
| If the gratuity amount is not paid within 30 days of the date it becomes payable, the employee is entitled to receive interest on the amount at the rate notified by the government from time to time. |
Tax implications |
| The gratuity amount received by an employee is exempt from income tax. The limit is currently Rs. 20 lakhs. Exemption is provided under Section 10(10) of the Income Tax Act. |
Forfeiture of Gratuity [Section 4(6)] |
i) For any act of damage or loss to the employer or establishment. ii) For misconduct or violence. iii) For any offence under rule of law. |
Power of exempt [Section 5] |
Recovery & Protection of Gratuity |
In case of death of an employee, a nominee shall apply for gratuity within 30 days from the date of gratuity becomes payable to him. Any complaint or dispute must be filed within 90 days to ALC or LC. |
Death Gratuity | |
Length of Service | Rate of Death Gratuity |
Less than 1 year | 2 time of monthly emoluments |
1 year or more but less than 5 years | 6 times of monthly emoluments |
5 year or more but less than 11 years | 12 times of monthly emoluments |
11 year or more but less than 20 years | 20 times of monthly emoluments |
20 Year or more | Half month of emoluments for every complete six monthly period of qualifying service subject to a maximum of 33 times of emoluments. |
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