Dear Raju-Gowda,
Based strictly on the provisions of section 4 of the Payment of Gratuity Act,1972, I am quite unable to understand and accept the answer given by our friend Alim Khan. I think that the Special Group Gratuity Insurance Policy covering whole life up to 58 years of age of the insured employees on payment of additional premium would have come to his mind when he drafted his reply.
As per the first proviso to ss (1) of section 4 of the PGA,1972, only the minimum qualifying service of 5 years is not applicable to the case of an employee dying in harness within 5 years of service in the establishment.
You can calculate and pay the gratuity to the deceased employee's nominee or legal heirs in the absence of nomination for the one year service he actually rendered as per sec.4(2) of the Act. If your management is magnanimous, more amount can also be paid.
In the absence of nomination, it is always better to deposit the gratuity amount payable with the Controlling Authority under the Act for the area for disbursement under intimation to the legal heirs.