THE PAYMENT OF GRATUITY THE PAYMENT OF GRATUITY ACT,1972 ACT,1972

Section 1 Section 1 Extent and ApplicationExtent and Application

It extends to the whole of IndiaIt extends to the whole of India

Applicable to:Applicable to: every factory, mine, oilfield, plantation, every factory, mine, oilfield, plantation,

port and railway company;port and railway company; every shop or establishment in which 10 every shop or establishment in which 10

or more persons are employed, or were or more persons are employed, or were employed, on any day of the preceding employed, on any day of the preceding twelve monthstwelve months

Section2Section2DefinitionsDefinitions

S.2 (e) "employee" means any person S.2 (e) "employee" means any person employed to do any skilled, semi-skilled, employed to do any skilled, semi-skilled, or unskilled, manual, supervisory, or unskilled, manual, supervisory, technical or clerical worktechnical or clerical work

it does not include an apprenticeit does not include an apprentice S.2 (s) "wages" includes dearness S.2 (s) "wages" includes dearness

allowance but does not include any allowance but does not include any bonus, commission, house rent allowance, bonus, commission, house rent allowance, overtime wages and any other allowance.overtime wages and any other allowance.

Section: 4Section: 4Gratuity when payable ?Gratuity when payable ?

Gratuity shall be payable to an employeeGratuity shall be payable to an employee Who has rendered continuous service for not less than Who has rendered continuous service for not less than

05 years05 yearson the termination of his employment -on the termination of his employment - on his superannuation, oron his superannuation, or on his retirement or on his retirement or resignation, orresignation, or on his death or disablement due to accident or disease:on his death or disablement due to accident or disease:

NoteNote:-:-The completion of continuous service of five years shall not The completion of continuous service of five years shall not

be necessary where the termination of the employment be necessary where the termination of the employment of any employee is due to death or disablement:of any employee is due to death or disablement:

How to calculate the Amount of How to calculate the Amount of GratuityGratuity Monthly rated employeeMonthly rated employee : :

At the rate of 15 days wages based on the rate of wages At the rate of 15 days wages based on the rate of wages last drawn by the employee concerned: last drawn by the employee concerned:

Formula:-Formula:-last drawn wageslast drawn wages X 15 days X No. of completed X 15 days X No. of completed year of serviceyear of service 2626

piece-rated employee, daily wages :piece-rated employee, daily wages :On the average of the total wages received by him for a On the average of the total wages received by him for a period of three months immediately preceding the period of three months immediately preceding the termination of his employment excluding overtime wagestermination of his employment excluding overtime wages

seasonal establishmentseasonal establishmentAt the rate of seven days wages for each season.At the rate of seven days wages for each season.

Maximum Limit Rs.3,50,000/-Maximum Limit Rs.3,50,000/- Higher benefits can be paid if the employer so Higher benefits can be paid if the employer so

desires.desires.

Can Gratuity be withheld by the Can Gratuity be withheld by the employer ?employer ?

The gratuity of an employee, whose services have The gratuity of an employee, whose services have been terminated for any act, wilful omission or been terminated for any act, wilful omission or negligence causing any damage or loss to, or negligence causing any damage or loss to, or destruction of, property belonging to the employer, destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss shall be forfeited to the extent of the damage or loss so caused.so caused.

The gratuity payable to an employee may be The gratuity payable to an employee may be wholly or partially forfeitedwholly or partially forfeited

If the services of such employee have been If the services of such employee have been terminated for his riotous or disorderly conduct or terminated for his riotous or disorderly conduct or any other act of violence on his part, orany other act of violence on his part, or

If the services of such employee have been If the services of such employee have been terminated for any act which constitutes an offence terminated for any act which constitutes an offence involving moral turpitude, provided that such offence involving moral turpitude, provided that such offence is committed by him in the course of his employment.is committed by him in the course of his employment.

Section 4A Section 4A Compulsory Insurance/LICCompulsory Insurance/LIC

Gratuity payable to the employees can be paid as and when liability arises Gratuity payable to the employees can be paid as and when liability arises and can be claimed as deductable expense under P & L A/c of the relevant and can be claimed as deductable expense under P & L A/c of the relevant financial years.financial years.

However, the sound system of financial management envisages providing However, the sound system of financial management envisages providing for Gratuity liability every year and claiming the tax benefits as it is for Gratuity liability every year and claiming the tax benefits as it is mandatory as per Accounting Standards 15 (AS15) to account for the mandatory as per Accounting Standards 15 (AS15) to account for the liability on Actual basis. liability on Actual basis.

This can be done by creating a Trust, This can be done by creating a Trust, managed privately managed privately OROR by LIC by LIC and and paying the amount to the Trust every year. paying the amount to the Trust every year.

In case of Privately Managed Trust, investment of funds will have to be In case of Privately Managed Trust, investment of funds will have to be done as per Income-Tax Act, by the trustees and entire administration of done as per Income-Tax Act, by the trustees and entire administration of the Trust including Actuarial Valuation will be the responsibility of the the Trust including Actuarial Valuation will be the responsibility of the Trustees. Trustees.

In case of LIC managed trust, the job of investment and actuarial valuation In case of LIC managed trust, the job of investment and actuarial valuation is taken over by the corporation free of charge and in addition, interest is is taken over by the corporation free of charge and in addition, interest is paid by the Corporation on the accumulated funds.paid by the Corporation on the accumulated funds.

Section: 5Section: 5Power to exemptPower to exempt

The appropriate Government i.e.The appropriate Government i.e. state Government orstate Government or central Government may (as the case central Government may (as the case

may be) exempt any establishment, may be) exempt any establishment, factory, mine, oilfield, plantation, port, factory, mine, oilfield, plantation, port, railway company or shop from the railway company or shop from the application of this Act by notification.application of this Act by notification.

Section: 6Section: 6NominationNomination

Each employee, who has completed one year of service, shall Each employee, who has completed one year of service, shall make nomination for to receive the amount of gratuity.make nomination for to receive the amount of gratuity.

In his nomination, an employee may, distribute the amount of In his nomination, an employee may, distribute the amount of gratuity payable to him amongst more than one nominee.gratuity payable to him amongst more than one nominee.

If at the time of making nomination he has already family, he If at the time of making nomination he has already family, he can not make nomination in favour of a person who is not a can not make nomination in favour of a person who is not a member of his family. If he does so it shall be void.member of his family. If he does so it shall be void.

Fresh nomination in favour of one or more members of his Fresh nomination in favour of one or more members of his family is required where he has not family at the time of family is required where he has not family at the time of making nomination..making nomination..

If a nominee predeceases the employee, the interest of the If a nominee predeceases the employee, the interest of the nominee shall revert to the employee who can make a fresh nominee shall revert to the employee who can make a fresh nomination.nomination.

Every nomination, fresh nomination or alteration of Every nomination, fresh nomination or alteration of nomination, as the case may be, shall be sent by the employee nomination, as the case may be, shall be sent by the employee to his employer, who shall keep the same in his safe custody.to his employer, who shall keep the same in his safe custody.

Section: 7Section: 7Determination of the amount of gratuityDetermination of the amount of gratuity

A person who is eligible for payment of gratuity shall A person who is eligible for payment of gratuity shall send a written application to the employer.send a written application to the employer.

The employer shall determine the amount of gratuity The employer shall determine the amount of gratuity and give notice in writing to the person to whom the and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority gratuity is payable and also to the controlling authority specifying the amount gratuity so determined as soon specifying the amount gratuity so determined as soon as gratuity becomes payable and whether or not an as gratuity becomes payable and whether or not an application has been made by the concerned employee.application has been made by the concerned employee.

The employer shall arrange to pay the amount of The employer shall arrange to pay the amount of gratuity within 30 days from the date it becomes gratuity within 30 days from the date it becomes payable.payable.

Section: 9Section: 9PenaltiesPenalties

Knowingly making false statement/ false Knowingly making false statement/ false representation to avoid to make payment representation to avoid to make payment imprisonment up to 06 months, or with fine imprisonment up to 06 months, or with fine which may extend to Rs.10,000/- or with which may extend to Rs.10,000/- or with both.both.

Breach, or makes default in complying with Breach, or makes default in complying with any of the provisions of this Act any of the provisions of this Act imprisonment for 03 months to 01 year, or imprisonment for 03 months to 01 year, or with fine which shall not be less than with fine which shall not be less than Rs.10,000/- but which may extend to Rs.10,000/- but which may extend to Rs.20,000/- or with both:Rs.20,000/- or with both:

Non-payment of any gratuity Non-payment of any gratuity imprisonment 6 months to 02 years + a fine. imprisonment 6 months to 02 years + a fine.

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