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Introduction
Payment of Gratuity Act, 1972 is the act which is developed for the welfare of retired employees. It provides life security to retired employees by providing a certain amount after retirement to live their lives peacefully after retirement. The objective of the Payment of Gratuity Act, 1972 is to provide a gratuity to retired employees. This act understands that it is essential to give a gratuity to employees as an asset for future security. It provides gratuity to the employees who work in the oil fields, plantations, mines, ports, railways, etc.
Applicability:-
As per the Gratuity Act, the scheme for the payment of gratuity is available to:
- Employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments and for matters connected therewith or incidental with.
- Every shop or establishment within the meaning of any law for the time being in force in relation to shops and establishments in a State, in which ten or more persons are employed, or were employed, on any day of the preceding twelve months;
- Such other establishments or class of establishments, in which ten or more employees are employed, or were employed, on any day of the preceding twelve months, as the Central Government may, by notification, specify in this behalf.
Employee :-
The term “employee” is defined in Section 2(e) of the Act as any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity;’.
Gratuity Entitlement :-
Gratuity is payable to an employee (nominee – in case of death of employee) who has rendered continuous service of five years or more on his termination of employment, superannuation, retirement or resignation. Completion of continuous service of five years is not necessary where the termination of employment is due to death or disablement due to accident or disease.
Exceptions :-
Forfeiture of gratuity amount wholly or partially or to the extent of Damage /loss in case of an employee whose service has been terminated for:
- Any act, wilful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer; or
- Act of riotous or disorderly conduct or any other act of violence on part of employee; or
- Any act which constitutes an offence involving moral turpitude, in the course of his employment.
Nomination:-
In case of death, the gratuity is payable to any of the following persons:
- Nominee
- Heirs (in absence of nomination)
- In case nominee/ heir is a minor, such amount will be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority.
The Gratuity limit has been raised from 10 lakhs to 20 lakhs:-
A recently approved amendment by the Centre has increased the maximum limit of gratuity. Now it is tax exempt up to Rs 20 lakh from the previous ceiling of Rs 10 lakh, which comes Section 10(10) of the Income Tax Act. The CBDT Notification no. S.O. 1213(E), dated 8 March 2019, clarified that the exemption limit of Rs 20 lakh would be applicable to employees in the event of retirement or death or resignation or disablement on or after 29 March 2018.