The Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 is an act that provides a scheme for the payment of gratuity to employees working in railways, ports, factories, oilfields, plantations, mines, shops or other establishments and for matters connected therewith or incidental thereto.[1]

Background

In India, gratuity is a type of retirement benefit. It is a payment made with the intent of monetarily helping an employee after his or her retirement. It was held by the Supreme Court of India in Indian Hume Pipe Co Ltd v Its Workmen that the general principle underlying a gratuity scheme is that by service over a long period the employee is entitled to claim a certain amount as retirement benefit.[2]

The Payment of Gratuity Act was passed by the Parliament of India on 21 August 1972 and it came in force from 16 September 1972.

Application and extent

The act applies to the whole of India. Including the two new Union territories earlier this law was not applicable for Jammu and Kashmir. The act applies to all factories, mines, oilfields, plantations, ports and railway companies. But in the case of shops or establishments, other than those stated before, it applies to those organisations with 10 or more persons are employed on any day of the preceding 12 months. Under Section 1(3-A), if in case of any shop and establishment to which the act applies, the number of employee reduces below 10, it shall continue to be governed by the act irrespective of the number of employees. Thus, no employer will be able to refuse gratuity under this act by reducing the number of employees. Under Section 2(e), nothing in this act applies to apprentices and persons who hold civil posts under the Central Government or State Governments and are subjected to any other act or rule other than this act.[3]

Payment of gratuity: Eligibility and calculation

Under Section 4, payment of gratuity is mandatory.[3] Gratuity shall be payable to an employee on termination of employment after he has rendered continuous service for not less than 5 years in a single organisation. The termination can be due to: Superannuation, Retirement or resignation, and Death or disablement due to accident or disease. As per Section 4(1), the completion of continuous service of 5 years is not required where termination of employment is due to death or disablement. In such case mandatory gratuity is payable.[3]

Gratuity is paid at a rate of 15 days' wages for every completed year of service or part thereof in excess of six months. The wages here means wages last drawn by the employee. The "15 days' wages" will be calculated by dividing the last drawn wages by 26 and multiplying the result with 15. But under Section 4(3), the maximum gratuity that is payable is fixed at ₹20,00,000. Any gratuity amount paid in excess of ₹20,00,000 is taxable in the employee's hands. [4]

References
  1. "Payment of Gratuity in India" (PDF). Chief Labour Commissioner (Central).
  2. "Indian Hume Pipe Co. Ltd vs Their Workmen on 8 February, 1968". indiankanoon.org. Retrieved 22 January 2020.
  3. "The Payment of Gratuity Act, 1972" (PDF). Retrieved 22 January 2020.
  4. "Centre clears bill to double tax-free gratuity to Rs 20 lakh". The Economic Times. 12 September 2017. Retrieved 22 January 2020.


This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.