Payment of Gratuity Act, 1972 (Applied All Over India Except J&K)
Gratuity is the reward in the form of money (BASIC + DA salary, maximum up to Rs. 10 lacs) given by an employer to an employee upon separation for continuous past services not less than 5 years (not even 4 years and 11 months will suffice). This applies in cases of retirement, superannuation, resignation, death, and disablement (even if not completed 5 years). Gratuity can be forfeited in case of termination.
Applicability
The Act applies to establishments or companies employing 10 or more employees. Once covered under the Act, the applicability continues even if the number of employees falls below 10.
Formula
Gratuity amount = Last drawn salary X 15/26 X completed years of service.
Where, Last drawn salary = Average of 3 months' wages; does not include overtime wages. Normally, 15 days' wages in a month of 26 days are calculated, but for seasonal employment, 7 days' wages in a month of 26 days are considered. Completed years of service: After 5 years, if worked more than 6 months but less than a year, it is calculated as another year. If worked less than 6 months, it is not considered as another year.
Last Amendment
The maximum amount of gratuity payable is Rs. 10 lacs instead of Rs. 3.5 lacs. The definition of an employee was previously limited to those performing manual, semiskilled, skilled, unskilled, supervisory, technical, clerical, managerial, or administrative work. Now, the definition has been broadened to include any person employed to do any kind of work, for example, a teacher is now considered an employee under the Act.
Authority
Appellate Authority - Deputy Labour Commissioners of the Labour Department. Controlling Authority - All Labour Officers and Assistant Labour Commissioners of the Labour Department.
Penalty
Up to 6 months imprisonment or a fine up to Rs. 10,000, or both, for a person making a false claim. For an employer not fulfilling the duty, the penalty is 3-12 months imprisonment or a fine of Rs. 10,000 – Rs. 20,000, or both. In case of non-payment, the penalty is 6-24 months imprisonment or a fine of Rs. 10,000, or both.
Process Flow Chart
- Employee or nominee submits FORM I to the employer (within 30 days or before 30 days when it becomes payable); a legal heir can submit within 1 year.
- Employer releases notice FORM L (within 15 days of FORM I submission) to the employee and Controlling Authority, even if the application is not received from the employee.
- Employer releases payment (within 30 days of notice reception), else pays with 10% simple interest.
Notes
- No wage ceiling.
- Uninterrupted service is required (other than maternity leave, sickness, accident, leave, absence from duty without leave, layoff, strike, or a lock-out or cessation of work not due to any fault of the employee; 240/190-mines days per year).
- Tax exemption of Rs. 10 lacs once in a lifetime.
- Gratuity cannot be stated as salary.
Regards
From India, Gurgaon
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22Gratuity is the reward in the form of money (BASIC + DA salary, maximum up to Rs. 10 lacs) given by an employer to an employee upon separation for continuous past services not less than 5 years (not even 4 years and 11 months will suffice). This applies in cases of retirement, superannuation, resignation, death, and disablement (even if not completed 5 years). Gratuity can be forfeited in case of termination.
Applicability
The Act applies to establishments or companies employing 10 or more employees. Once covered under the Act, the applicability continues even if the number of employees falls below 10.
Formula
Gratuity amount = Last drawn salary X 15/26 X completed years of service.
Where, Last drawn salary = Average of 3 months' wages; does not include overtime wages. Normally, 15 days' wages in a month of 26 days are calculated, but for seasonal employment, 7 days' wages in a month of 26 days are considered. Completed years of service: After 5 years, if worked more than 6 months but less than a year, it is calculated as another year. If worked less than 6 months, it is not considered as another year.
Last Amendment
The maximum amount of gratuity payable is Rs. 10 lacs instead of Rs. 3.5 lacs. The definition of an employee was previously limited to those performing manual, semiskilled, skilled, unskilled, supervisory, technical, clerical, managerial, or administrative work. Now, the definition has been broadened to include any person employed to do any kind of work, for example, a teacher is now considered an employee under the Act.
Authority
Appellate Authority - Deputy Labour Commissioners of the Labour Department. Controlling Authority - All Labour Officers and Assistant Labour Commissioners of the Labour Department.
Penalty
Up to 6 months imprisonment or a fine up to Rs. 10,000, or both, for a person making a false claim. For an employer not fulfilling the duty, the penalty is 3-12 months imprisonment or a fine of Rs. 10,000 – Rs. 20,000, or both. In case of non-payment, the penalty is 6-24 months imprisonment or a fine of Rs. 10,000, or both.
Process Flow Chart
- Employee or nominee submits FORM I to the employer (within 30 days or before 30 days when it becomes payable); a legal heir can submit within 1 year.
- Employer releases notice FORM L (within 15 days of FORM I submission) to the employee and Controlling Authority, even if the application is not received from the employee.
- Employer releases payment (within 30 days of notice reception), else pays with 10% simple interest.
Notes
- No wage ceiling.
- Uninterrupted service is required (other than maternity leave, sickness, accident, leave, absence from duty without leave, layoff, strike, or a lock-out or cessation of work not due to any fault of the employee; 240/190-mines days per year).
- Tax exemption of Rs. 10 lacs once in a lifetime.
- Gratuity cannot be stated as salary.
Regards
From India, Gurgaon
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Sure, you seem to have a good understanding of the Payment of Gratuity Act, 1972. It is indeed applicable to all establishments or companies employing 10 or more employees in India (except J&K). The gratuity amount is calculated using the formula you've mentioned, i.e., Last drawn salary X 15/26 X completed years of service.
👉 Here's a step-by-step guide on how the process works:
1. The employee or nominee should submit FORM I to the employer. This should be done within 30 days or before 30 days when the gratuity becomes payable. In case of the employee's death, the legal heir can submit the form within 1 year.
2. The employer is then required to release a notice, FORM L, within 15 days of receiving FORM I. The notice should be sent to the employee and the Controlling Authority, even if an application has not been received from the employee.
3. The employer must release the payment within 30 days of receiving the notice. If the payment is not made within this time, the employer is required to pay with a 10% simple interest.
💡 Remember, there's no wage ceiling for gratuity. The only requirement is that the employee must have provided uninterrupted service for at least 5 years (with some exceptions such as maternity leave, sickness, accident, leave, absence from duty without leave, lay off, strike, or a lock-out, or cessation of work not due to any fault of the employee).
📚 The Payment of Gratuity Act, 1972 also provides tax exemption up to Rs. 10 lacs once in a lifetime. However, it's important to remember that gratuity cannot be stated as salary.
⚠️ Penalties for non-compliance with the act can be severe. They range from fines to imprisonment, depending on the severity of the violation.
📑 The Appellate Authority for this act is the Deputy Labour Commissioners of the Labour Department, and the Controlling Authority includes all Labour Officers and Assistant Labour Commissioners of the Labour Department.
I hope this provides a clear and actionable guide on the Payment of Gratuity Act, 1972. It's important to understand and follow these rules to ensure compliance and avoid penalties.
From India, Gurugram
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👉 Here's a step-by-step guide on how the process works:
1. The employee or nominee should submit FORM I to the employer. This should be done within 30 days or before 30 days when the gratuity becomes payable. In case of the employee's death, the legal heir can submit the form within 1 year.
2. The employer is then required to release a notice, FORM L, within 15 days of receiving FORM I. The notice should be sent to the employee and the Controlling Authority, even if an application has not been received from the employee.
3. The employer must release the payment within 30 days of receiving the notice. If the payment is not made within this time, the employer is required to pay with a 10% simple interest.
💡 Remember, there's no wage ceiling for gratuity. The only requirement is that the employee must have provided uninterrupted service for at least 5 years (with some exceptions such as maternity leave, sickness, accident, leave, absence from duty without leave, lay off, strike, or a lock-out, or cessation of work not due to any fault of the employee).
📚 The Payment of Gratuity Act, 1972 also provides tax exemption up to Rs. 10 lacs once in a lifetime. However, it's important to remember that gratuity cannot be stated as salary.
⚠️ Penalties for non-compliance with the act can be severe. They range from fines to imprisonment, depending on the severity of the violation.
📑 The Appellate Authority for this act is the Deputy Labour Commissioners of the Labour Department, and the Controlling Authority includes all Labour Officers and Assistant Labour Commissioners of the Labour Department.
I hope this provides a clear and actionable guide on the Payment of Gratuity Act, 1972. It's important to understand and follow these rules to ensure compliance and avoid penalties.
From India, Gurugram
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Payment of Gratuity Act, 1972 & The Rules.ppt
THE PAYMENT OF GRATUITY ACT 1972.doc