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The Payment of Gratuity Act 1972:-Gratuity is a voluntary Payment made by the employer to the employee in recognition of continuous, meritorious services and sincere efforts by the employee towards the organization. It is governed under the Payment of Gratuity Act 1972.It  is  an  Act  to  provide  for  a  scheme  for  the  payment  of gratuity  to  employees  engaged  in  factories,  mines, Oilfields, plantations, ports, railway companies, and shops or other establishments.


Applicability:-As per the Gratuity Act, the scheme for the payment of gratuity is available to:


o    Employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental with.

o    Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;

o    Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.


Employee :-The term “employee” is defined in Section 2(e) of the Act as any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity;’.


Gratuity Entitlement :-Gratuity is payable to an employee (nominee – in case of death of employee) who has rendered continuous service of five years or more on his termination of employment, superannuation, retirement or resignation. Completion of continuous service of five years is not necessary where the termination of employment is due to death or disablement due to accident or disease.


Exceptions:-Forfeiture of gratuity amount wholly or partially or to the extent of Damage /loss in case of an employee whose service has been terminated for:

o    Any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer; or

o    Act of riotous or disorderly conduct or any other act of violence on part of employee; or

o    Any act which constitutes an of­fence involving moral turpitude, in the course of his employment.


Nomination:-In case of death, the gratuity is payable to any of the following persons:

o    Nominee

o    Heirs (in absence of nomination)

o    In case nominee/ heir is a minor, such amount will be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.


The Gratuity limit has been raised from 3.5 lakhs to 10 lakhs:-There  has  been  amendment  in  the Payment  of  Gratuity  Act  1972,    following  proposal  of  Labor  and Employment  Ministry,  demands from  trade  unions  and  others  to remove  the  ceiling  or  increase the maximum  payable  amount,  which was fixed in 1997. It shall come into force on 24 May 2010 as  per  the  Notification  in the Official Gazette.

Maximum Limit :-The Gratuity limit as per Section 4(3) has been raised from 3.5 lakhs to 10 lakhs. This will give advantage to both private and public sector employees. According to this new amendment, the maximum gratuity exemption as per IT Act also increases to Rs. 10,00,000.


Determination of Gratuity Amount

o    For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of wages last drawn by the employee concerned.

o    The Gratuity calculation is done as per the last average remuneration drawn and time in years served by an employee.

o    The amount of gratuity payable to an employee shall not exceed Rs. 10,00,000 (increased from Rs. 3,50,000).

o    In order to compute the gratuity payable in case of employees em­ployed in seasonal establishments, daily wages, or piece rated employ­ees. Computation will be as per the provision of the Act.

o    It can be formulated as follows: Basic + DA (Wages Last drawn)* 15days /26 * number of years of continuous service (six months or less to be ignored and more than six months to be counted as full year)







Compliance by




30 days after completing 1 year service



Application for Gratuity


o    on gratuity becoming payable to the employee


30 days from the date of gratuity becoming payable



o    on gratuity becoming payable to the nominee


30 days from the date of gratuity becoming pay-able



o    on gratuity becoming payable to heir


1 year from the date of gratuity becoming pay-able

Legal Heir


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Article ID: 3
Category: Employee Welfare Schemes
Date added: 15-May-2013 06:29:46
Views: 1846
Rating (Votes): Article rated 3.9/5.0 (33)

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