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Payment of Gratuity Act, 1972... A Brief


Gratuity - Meaning

Gratuity is a lump sum payment made by the employer as a mark of recognition of the service rendered by the employee when he retires or leaves service.


The Act is applicable to every factory, shop or an establishment, in which ten or more persons are employed, or were employed on any day of the proceeding twelve months. Every employee irrespective of his salary will be entitled to gratuity. Once the Act becomes applicable, it shall continue to be governed by the provisions notwithstanding that the number of persons employed therein have fallen below ten.


An employee is eligible for receiving gratuity payment only after he has completed five years of continuous service. He is said to be in continuous service when he has provided uninterrupted service during that period.

  • on super annuation or
  • on his retirement or resignation or
  • death or disablement due to accident or disease.

This condition of five years is not necessary if the termination of the employment of an employee is due to death or disablement. However, interruption on account of sickness, accident, leave, lay-off, strike, lockout, cessation of work not due to any fault of the employee will not be considered as a break in service. (Section 4)

Amount Payable

Gratuity is payable @ 15 days wages for every year of completed service or part thereof in excess of six months. In case of seasonal establishment, gratuity is payable @ 7 days wages for each season. Wages will include basic and D.A. The daily wages in respect of piece rated employees are to be computed on the average of the total wages received by an employee for a period of three months. The maximum amount of Gratuity payable is Rs. 3.5 lakhs.

Amount - When payable

Any person to whom the gratuity amount is payable shall make a written application to the employer. The employer is required to determine the amount of gratuity payable and give notice in writing to the person to whom the same is payable and to the controlling authority thereby specifying the amount of gratuity payable. The employer is under obligation to pay the gratuity amount within 30 days from the date it becomes payable. Simple interest at the rate of 10% p.a. is payable on the expiry of the said period. If there is a dispute as regards the amount of gratuity payable or with regards the person to whom it is payable, the employer shall deposit the said amount payable with the controlling Authority. If the gratuity is not paid within the prescribed time, the controlling authority shall after due inquiry determine the amount payable and direct the employer to deposit the said amount. If an employer agrees to provide more benefits than the benefits flowing from the Act, he can always have a private scheme.


Every employee who completes one year of service is eligible to file nomination in Form - F in duplicate to the employer. In case of death of employee, a nominee or legal heir shall submit the application in Form J or K for claim amount. The employer shall pay the gratuity within 30 days of the receipt of the application. If no nomination has been made, it shall be paid to the legal heirs of the deceased employee or if the heirs are minor, the share of such minor shall be deposited by the controlling authority with a bank till he attains majority.


Gratuity can be forfeited for any employee whose services have been terminated for any act, willful omission or negligence causing damage or destruction to the property belonging to the employer. It can also be forfeited for any act which constitutes an offence involving moral turpitude. Where services have not been terminated on any of the above grounds, the employer cannot withhold gratuity due to the employee. Where the land of the employer is not vacated by the employee, gratuity cannot be withheld.

Obligation of the Employer

  1. The employer is usually required to submit a notice of opening of an establishment to the controlling authority of the area in form A containing names and addresses of the establishment, employer, number of persons employed, nature of business etc.
  2. The employer shall display conspicuously a notice at or near the main entrance of the establishment in bold letters in English and in a language understood by the majority of employees.
  3. It is the duty of the employer to determine the amount of gratuity as soon as it becomes payable. Failure to do so shall render him liable to pay the interest at the prevailing rate from time taken.
  4. To obtain insurance in the prescribed manner for his liability for payment of gratuity under the Act or establish approved gratuity fund in the prescribed manner.


If any person makes a false statement for the purpose of avoiding any payment to be made by him under this Act he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees or with both. If an employer contravenes any provision of the Act, he shall be punishable with imprisonment for a term which shall not be less than three months but which may extend to one year or with a fine, which may vary from ten thousand rupees to twenty thousand rupees.

No court shall take cognizance of any offence punishable under this Act save on a complaint made by or under the authority of the appropriate Government :

Provided that where the amount of gratuity has not been paid, or recovered, within six months from the expiry of the prescribed time, the appropriate Government shall authorise the controlling authority to make a complaint against the employer, whereupon the controlling authority shall, within fifteen days from the date of such authorisation, make such complaint to a Magistrate having jurisdiction to try the offence.

No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under this Act.

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