The Payment of Gratuity Act 1972
The Payment of Gratuity Act 1972
By,
Vishwakarma Deviprasad
Section 1
Extent and Application
Applicable to:
every factory, mine, oilfield, plantation, port
and railway company;
every shop or establishment in which 10 or
more persons are employed, or were employed,
on any day of the preceding twelve months
Section2
Definitions
S.2 (e) "employee" means any person employed to
do any skilled, semi-skilled, or unskilled, manual,
supervisory, technical or clerical work
it does not include an apprentice
S.2 (s) "wages" includes dearness allowance but
does not include any bonus, commission, house
rent allowance, overtime wages and any other
allowance.
Section: 4
Gratuity when payable ?
Note:-
The completion of continuous service of five years shall not be
necessary where the termination of the employment of any
employee is due to death or disablement:
How to calculate the Amount of Gratuity
Monthly rated employee :
At the rate of 15 days wages based on the rate of wages last drawn by
the employee concerned:
seasonal establishment
At the rate of seven days wages for each season.
Maximum Limit Rs.3,50,000/-
Higher benefits can be paid if the employer so desires.
Can Gratuity be withheld by the employer ?
However, the sound system of financial management envisages providing for Gratuity
liability every year and claiming the tax benefits as it is mandatory as per Accounting
Standards 15 (AS15) to account for the liability on Actual basis.
This can be done by creating a Trust, managed privately OR by LIC and paying the
amount to the Trust every year.
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 the Trust including
Actuarial Valuation will be the responsibility of the Trustees.
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 paid by the Corporation on
the accumulated funds.
Section: 5
Power to exempt
Each employee, who has completed one year of service, shall make
nomination for to receive the amount of gratuity.
In his nomination, an employee may, distribute the amount of
gratuity payable to him amongst more than one nominee.
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 member of his
family. If he does so it shall be void.
Fresh nomination in favour of one or more members of his family is
required where he has not family at the time of making nomination..
If a nominee predeceases the employee, the interest of the nominee
shall revert to the employee who can make a fresh nomination.
Every nomination, fresh nomination or alteration of nomination, as
the case may be, shall be sent by the employee to his employer, who
shall keep the same in his safe custody.
Section: 7
Determination of the amount of gratuity