Purpose & Object

The Payment of Gratuity Act, 1972 has been enacted to provide for a scheme for payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments upon their superannuation, retirement, resignation, death or disablement due to accident or disease.

Applicability

• Payment of Gratuity Act, 1972 extends to whole of India.
• It applies to every factory, mine, oilfield, plantation, port and railway company, shop or establishment in which 10 or more persons are or were employed on any day of the preceding 12 months;
• It applies to all such other establishments or class of establishments in which 10 or more persons are or were employed on any day of the preceding 12 months as the Central Government may, by notification, specify in this behalf.

Eligibility

Gratuity is payable to employees who have rendered continuous service of at least 5 years.

Maximum Limit

• Employees covered under the Act are entitled for maximum amount of gratuity of Rs. 20,00,000/-
• The employer may be pleased to offer better terms of gratuity. However, any amount exceeding the maximum prescribed limit of gratuity (Rs. 20,00,000/-) becomes taxable in the hands of the recipient.

Rate of Gratuity

• Gratuity is payable at the rate of 15 day's last drawn wages by the employee concerned for every completed year of his service or part thereof in excess of 6 months.
• In case of a monthly rated employee, 15 day's wages shall be calculated by dividing the last drawn monthly wages by 26 and multiplying the quotient by 15.
• In case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of 3 months immediately preceding the termination of his employment (without taking into account the wages paid for any overtime work).