The Payment of Gratuity Act, 1972


The payment of gratuity is applicable to any institution which has employed 10 or more persons for 12 months. The Gratuity Act 1972 covers the employees of the organization coming from mines, ports, companies, plantation, etc. Once an organization gets registered under the Gratuity act, they are bound to pay the gratuity even if the count of employees goes below to 10. The act is government by Payment of Gratuity Act, 1972.

Gratuity is a comprehensive payment from the employer’s front without any requirement of contribution from the employees end. And it’s a monetary benefit given to the employee by the employer. Gratuity is the right of employee and even if the employer goes bankrupt, he/she is liable to pay the gratuity amount to the employees.

Contractual or temporary employees are not covered under the act to claim gratuity. But it can be given, if the organization chooses to do so. The act is applicable for all the states of India except Jammu and Kashmir. All the government bodies, defense department fall under the purview of this act. And the private organizations are also covered under the act but they are subject to certain criteria.

The employer gets two choice in payment of gratuity. One is where the amount can be paid from gratuity fund and in other case, the amount can be paid by life insurer and can go for group gratuity plan.

The Basic Calculation For Gratuity Includes:

  • The gratuity is calculated from the first of day to last of working day including the tenure of notice period.
  • And the formula is Last drawn salary x 15/26 x Completed years of Service
  • if the employee belongs to seasonal establishment, then the calculation includes 7 days wages for each season.

Eligibility For Gratuity Act

  • Gratuity is a benefit given by the employer to employee for rendering the service to the organization. And is usually paid at the time of retirement but subject to several conditions gratuity can be availed in few other circumstances as well. Thus check out the list for eligibility for Gratuity.
  • The employee should have retired from the job
  • An employee must comply with superannuation
  • If the employee has resigned from organization after 5 years of continuous employment
  • The 5 year of continuous employment includes the days of lockout, accident, leaves, strikes, layoff, etc. in the working day.
  • If the employer has died or become disabled due to accident or sickness
  • It’s also applicable on VRS, layoff due to retrenchment and termination

Pointers On Gratuity Payment

It’s dependent upon last drawn salary and number of working years, where the salary includes basic salary, dearness allowance, and commission received on sales.

  • The employer holds the right to reject the payment of gratuity if the employee was asked to resign due to misconduct or fraudulent behavior.
  • In case of the death of employee before or after the retirement, the gratuity amount is paid to the nominee or legal heir. Thus for nominating the name for nominee, an employee needs to fill the form F while joining the company.
  • An employer must pay the amount of gratuity within 30 days from the final settlement, and if in case of delay, the employer must pay the interest on gratuity from the actual payment date.
  • The limit for the gratuity amount is formulated for government and non- government employee, where for the government employees its 20 lakhs INR and for non- government employee its 10 lakhs INR.
  • For the calculation of Gratuity, the act is diving into categories for non-government employee. And they include the employees covered under the act and employees not covered under the act.

The Gratuity Basically Involves Three Steps and They Are

Acknowledgment: The acknowledgement and calculation of gratuity is required to be done by the employer to employee and controlling authority with the amount specified. The request for payment of gratuity must be done by the employer to employee.

The employer holds the right to forfeit the Gratuity partially or wholly even if the 5 years of continuous employment is completed. And the forfeiture of gratuity can be done on the basis of misconduct or violent act.

Request: A request application of gratuity is sent to the employer by employee.

Disbursement: And thereafter the receiving of acknowledgment from the concerned department, the disbursement of the gratuity is done.

Tax Exemption

Gratuity paid to the legal heir is exempt from tax. Or any ex gratia paid to the employee on disablement is also exempt from tax. The gratuity for government employees coming from central/state/local authority is also exempt from tax.

Our Responsibilities And Duties

Our responsibilities and duties under the gratuity act stretches from:

  • Assisting in obtaining registration from the controlling authority
  • Helping in calculating the gratuity amount of employee by taking into account the guidelines of the Gratuity act
  • Guiding in terms of gratuity fund, submissions, etc
  • Providing the information on latest updates and changes of the act
  • Leveraging support during the inspection or enquiry conducted by the Inspector,
  • Representing on behalf of the establishment at Appellate Authority
  • Replying to the show cause notice generated by the Inspector or Appellate Authority
  • Preparation and filling of returns
  • Helping in understanding the technicalities and complexities of the legal matters and jargons
  • Contacting the controlling authority from time to time
  • Supporting in change of name

Attain Professional Guidance On Gratuity Act From Us?

Providing the best consultancy services in Gratuity, we can handle all your queries and concerns related to the act. Furnishing each detail and calculations we take into account the interest of the employer and complete the proceedings on the behalf of organizations.

Seeking professional assistance in the legal matter is fruitful. As the organization or entity can focus on their operations and leave the baggage of accounting calculations and maintenance of record on us.

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