Payment of Gratuity is an Indian law that makes companies pay a one-time gratuity to retired employees or an employee who resigns after a minimum of 5 years of service. The law applies to all companies of at least 20 employees. The wages for the purpose of calculating gratuity are the average of the employee’s last 3 months’ wages, or the average of the employee’s wages for the last 10 months of service, whichever is higher.
Gratuity is payable within 30 days of the employee’s retirement or resignation, or within 30 days of the employee’s death, if the gratuity is payable to the employee’s nominee. The Payment of Gratuity Act, 1972 is a valuable benefit for employees, as it provides them with a financial cushion after they retire or resign from their jobs. The law also helps to ensure that employees are not left destitute after they leave the workforce.
If you are an employee with 5 or more years of service, you may be eligible for gratuity when you retire or resign from your job. You can find out more about your gratuity entitlement by contacting your employer or the Ministry of Labour and Employment.
Candidates can read here the eligibility and entitlement under the Payment of Gratuity Act 1972:
Eligibility– The Payment of Gratuity Act, 1972, states that an employee is eligible to get gratuity only after he or she has worked with an organization for at least five years. The employee stands to receive the gratuity amount on his or her superannuation, or at the time of retirement or resignation. To be eligible for gratuity under the Payment of Gratuity Act, 1972, an employee must meet the following criteria:
Entitlement- The amount of gratuity payable to an employee is calculated as follows:
Here is a step-by-step guide on how to calculate gratuity benefits:
Download PDF: Payment of Gratuity Act 1972
Here is a table summarizing the calculation of gratuity benefits:
Parameter | Formula |
Average monthly salary | (Sum of last 3 months’ wages + Sum of last 10 months’ wages) / 2 |
Number of completed years of service | Total years of service – (Number of years of service less than 6 months) |
Gratuity amount | (Average monthly salary x Number of completed years of service) / 26 |
The Payment of Gratuity Act, 1972 is a law that provides for the payment of gratuity to employees who have completed at least five years of continuous service in an establishment. The Act sets out the rights and obligations of both employers and employees in relation to gratuity.
Rights of Employees- The following are the rights of employees under the Payment of Gratuity Act 1972:
Obligations of Employers- The following are the obligations of employers under the Payment of Gratuity Act 1972:
The procedure for claiming gratuity benefits under the Payment of Gratuity Act 1972 is as follows:
If the employer fails to pay the gratuity amount within 30 days of the employee’s retirement or resignation, or within 30 days of the employee’s death, the employee can file a claim with the Labour Commissioner. The Labour Commissioner can order the employer to pay the gratuity with interest.
Accordingly, the Government initiated the process for amendment to the Payment of Gratuity Act, 1972 to increase the maximum limit of gratuity to such amount as may be notified by the Central Government from time to time. Now, the Government has issued a notification specifying the maximum limit to Rs. 20 Lakh.
The Exemptions under Payment of Gratuity 1972 are provided below:
1. If Gratuity is received during the period of employment then NO exemption will be provided to any employee whether an employee of a government firm or others.
2. If Gratuity is provided after retirement to the employees of any government firm then it is FULLY EXEMPT for tax purposes.
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The Act provides for payment of gratuity at the rate of 15 days wage s for each completed year of service subject to a maximum of Rs. ten lakh.
According to the new gratuity policy for 2023 guidelines, the law limits the maximum basic pay to 50% of CTC, which will increase the gratuity bonus that must be provided to employees.
Gratuity: An employee is eligible for gratuity payment after completing 5 years of continuous service with one employer.
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