FAQS-About Gratuity

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Act : The Payment of Gratuity Act, 1972

Rules framed thereunder : The Payment of Gratuity (Central) Rules, 1972
and The Payment of Gratuity (Maharashtra)
Rules, 1972
No. Provision Brief Description Periodicity Authority Designated

Officer
1. Sec 4 Payment of gratuity on As and when NA Person having
termination of employment ultimate
after 5 years of continuous control over
service and upon death affairs of
establishment
or factory
2. Sec 4A Compulsory insurance to be One time Ditto
obtained by employer in
respect of their liability to pay
gratuity; unless exempted by
the government. Establishment
of approved gratuity fund
3. Sec 6 (7) Nomination forms of Ongoing NA Ditto
employees to be kept in safe
custody
4. Sec 7 Determination of amount of As and When Controlling Ditto
gratuity to be done by the (within 30 authority to
employer when it becomes days) deal with
payable and payment of the disputes
same within 30 days. The
employee and controlling
authority are to be informed of
the fact that gratuity has
become payable
5. Rule 4 of Display of notice at the main Ongoing Ditto
the Central entrance regarding
& State authorization to receive notices
Rules under this act. Notice to be in
English, Marathi and Gujarati
6. Rule 5 r/w Notice to be given by any As and when Controlling NA
Sec 2(h) (ii) female employee excluding her required authority of
& Form D husband from the area
of the family/withdrawing such a
Central & notice
State Rules
7. Rule 6 r/w Verification of service Within 30 days NA Person having
Form F of particulars as mentioned in of receiving ultimate
the Central nomination form with reference nomination control over
& State to the records of the forms affairs of
Rule establishment and alteration of establishment
the same by authorised person or factory
8. Rule 8 r/w Gratuity to be paid in cash or As and when Intimation Ditto
Form L and Demand Draft/Bank Cheque (if required about details of
M of the payee requires) payment to be
Central & sent to
State Rules controlling
authority
9. Rule 9 of Gratuity to be paid in cash or As and when Intimation Ditto
the Central Demand Draft/ Bank Cheque required about details of
and State (if payee requires) pay men to be
Rules sent to the
controlling
authority
10. Rule 20 of Employer to display an abstract Ongoing NA Ditto
Central and of the Act and the rules in
State Rules accordance with From U, in
English and in the languages
understood by majority of the
employees at a conspicuous
place
Section 4
Payment of gratuity to employee who has rendered continuous service for at least 5 years (technically 4
years and 8 months – reference Madras High Court Judgment)
• On his superannuation
• On his retirement or resignation
• On his death or disablement due to accident or disease
In case of employee’s death, gratuity payable to nominee or heirs – tax exempt/
Gratuity at the rate of 15 days wages based on the rate of wages last drawn by the employee concerned to
be paid for every completed year of service or part thereof exceeding six months – exact formula 15/26 x
Last drawn basic
As regards piece-rated employees daily wages is to be computed as an average of his daily wages
received in the 3 months prior to the termination of his service (wages paid for overtime work not being
taken into account)
Tax exemption on Gratuity payable to an employee shall not exceed Rs 3,50,000/- (now Rs. 10,00,000)
during lifetime.
Gratuity payable to an employee re-employed after disablement shall be computed in terms of wages
received prior to disablement and reduced wages subsequent to his disablement
2) Section 4A
Compulsory insurance to be obtained in manner prescribed for payment of gratuity, unless exempted by
the appropriate government by virtue of an already established and approved gratuity fund.
Establishment to be registered with the controlling authority after adhering to the above requirement
Contravention with the provisions of the Section attracts a fine which may extend to Rs 10,000 and in the
case of a continuing offence with a further fine which may extend to Rs 1000 for each day during which
the default continues
3) Section 6(7)
The following that are given by the employee are to be kept in safe custody
Nominations
Fresh nominations
Alterations of nomination
4) Section 7
Amount of gratuity payable to be determined by the company as soon as it becomes payable
Notice of the amount of gratuity determined has to be given to
The person to whom gratuity is payable
Also to the controlling authority
Gratuity must be paid within 30 days from the date on which it becomes payable
If gratuity is not paid in time it has to be paid with simple interest at the rate which is not more than the
rate than has been notified by the Central Government from time to time for the repayment of long-term
deposits
5) Section 12
Penalties are attracted in the following cases:-
• If a person makes false statements/representations to avoid making payments under the Act The
punishment extends to imprisonment upto 6 months and/or a fine which may extend to Rs 10,000/-
• If an employer contravenes/or fails to comply the provisions of the Act or the rules made hereunder.
The punishment extends to imprisonment not less than 3 months but which may extend to 1 year
and/or with fine which shall not be less than Rs 10,000/- and not exceeding Rs 20,000/-
• If the offence relates to non-payment of gratuity, the employer shall be punishable with imprisonment
not less than 6 months but which may extend to 2 years, unless the court records reasons for imposing
a lower punishment or only a fine
Central Rules and State Rules

6) Rule 4
Display of Notice at/near main entrance of establishment in
• English and
• Any other language that is understood by the majority of the employees (Marathi or Gujarati)
specifying the name of the person who is authorised to receive notices under this Act
• Fresh notice to be displayed immediately when the displayed notice becomes illegible or requires
a change
7) Rule 5 read with Section 2 (H) (ii) and Form D

Notice given by female employee regarding
Exclusion of her husband from family for the purposes of the Act or
Withdrawing such a notice to be sent to the Controlling Authority of the area
8) Rule 6 Read with Form F

Verification of service particulars, as mentioned in the nomination form with reference to records of the
establishment and its alteration by a person authorised is to be done within 30 days of receiving the same
9) Rule 8 Read with Form L and M

• Within 15 days of receipt of application for payment of gratuity:-
• If claim is admissible, notice to be issued in Form L for payment of gratuity specifying amount
payable and the date for the same (date not being later than 30 days from the date of receipt of
the application)
• If claim is not admissible then notice under Form M to be issued specifying why claim is not
admissible
In both the situations a copy of either of the notices is to be sent to the Controlling Authority of the area
10) Rule 9
• Gratuity to be paid to the employee, her/his nominees or legal heirs in
• Cash
• Demand Draft/Bank Cheque (if the payee desires)
• The payment may also be made by a postal money order in case it is so desired by the persons
concerned and in case the gratuity payable is less than Rs. 1000 and after deducting the
commission for the postal order
• Intimation about the details of payment shall also be given by the employer to the controlling
officer
11) Rule 20
Employer to display abstract of the Act and rules in accordance with Form U at a conspicuous place of
the establishment in English and the language understood by the majority of the workers

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________________________________________________________________________

Act : The Payment of Gratuity Act, 1972

No. Provision Brief Description Periodicity Authority Designated

In case of employee’s death, gratuity payable to nominee or heirs – tax exempt/

Central Rules and State Rules

7) Rule 5 read with Section 2 (H) (ii) and Form D

8) Rule 6 Read with Form F

9) Rule 8 Read with Form L and M

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