Dear all,
A ready guide to the Payment of Gratuity Act, 1972
Payment of Gratuity Act, 1972
| Application | It applies to the whole of India and so far as it relates to ports and plantations it does not apply to the State of Jammu and Kashmir. It applies to: (a) every factory, mine, oilfield, plantation, port and railway company. (b) Every shop or establishment in which 10 or more persons are or were employed on any day in the preceding 12 months. (c) Such other establishments or class of establishmentas the Central Government may notify in this behalf. Any shop or establishment shall continue to be governed by the Act even if the no. of its employees comes below 10 persons at any time in the future. Public charitable and religious trusts are also covered by this Act, provided that they are shops or establishments within the meaning of the Shops and Establishment Act and that 10 or persons have been employed by them on any day in the preceding 12 months. | ||||||
| Payment of gratuity | Gratuity shall be paid to an employee on the termination of his employment after s/he has rendered continuous service of not less than 5 years i.e. on superannuation, retirement, resignation, death or disablement due to accident or disease (Sec 4). The period of 5 years is not necessary if the termination of the employee is because of death or disablement. In the case of death the amount is paid to the legal heirs | ||||||
| Calculation of Gratuity | Gratuity is calculated at 15 days wages last drawn by the employee for each completed year of service. The monthly wage is divided by 26 and multiplied by 15. In computing a completed year of service the period in excess of six months shall be taken as a full year. Gratuity = Monthly salary x 15 days x No. of years of service 26 | ||||||
| Max amount of Gratuity payable | The maximum amount of gratuity payable under the Act is Rs. 10 lakhs. (Revised) | ||||||
| Forfeiture of Gratuity | Gratuity can be forfeited {Sec 4(6)} where an employee has been terminated (i) for any act, willful omission or negligence causing any damage or loss to or destruction of any property belonging to the employer, to the extent of such loss or damage. (ii) for riotous or disorderly conduct or any act of violence on his part. (iii) For any act which constitutes an offence involving moral turpitude, provided the offence has been committed by him in the course of his employment. | ||||||
| Nomination (Sec 6) | Each employee who has completed one year of service is required to make a nomination for the purposes of gratuity in case of his death. There can be more than one nominee. (Form F). Nominees may be changed at any time by the employee, by giving a written notice to the employer. (Form H). If no nomination has been made, it shall be paid to the legal heirs of the deceased employee or if the heirs are minor, the share of such minor shall be deposited by the controlling authority with a bank till he attains majority. | ||||||
| Penalty | Failure to comply with the Payment of Gratuity Act 1972 entails certain penalties (Sec.9), which are the following:
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Thanks and Regards,
Pranav Vaidya
Article Assistant
Gokhale & Sathe
Chartered Accountants
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