Gratuity Not defined under the act Gratuity is a Lump sum payment to an employee When he retires or leaves the service. Itis a retirement benefit to employees (to live comfortably after retirement)1: Introduction (1) Name: Payment of Gratuity Act, 1972 (2) Extends: whole of India(plantations or ports = shall not extend to the State of Jammu and Kashmir) (4) Effective: 16-9-1972 Total Sections: 15 Sections Amendments © Payment of Gratuity (Amendment) Act, 1987 © Payment of Gratuity (Amendment) Act, 1994 © Payment of Gratuity (Amendment) Act, 2009 © Payment of Gratuity (Amendment) Act, 2010~1(3): APPLICABILITY OF THE ACT The Act applies to every © Factory, mining, plantation, port, and Railway Company ® Shop and establishments, where 10 or more persons are employed or were employed (on any day of the preceding 12 months) © establishments of class of establishments, where 10 or more persons are employed or were employed (on any day of the preceding 12 months) (as the CG may Specify) Note: Act Continue to Apply (even if Employee fall below 10)ELIGIBILITY FOR GRATUITY All Employees are eligible for Gratuity 2(e) Employee means © any person (other than an apprentice) © whois employed for wages, whether the terms of such employment are express or implied, @ in any kind of work, manual or otherwise, © inor in connection with the work of © a factory, mine, oil field, plantation, port, railway company, shop or © otherestablishmentto which this Act applies,But does not include any such person Who holds a post under the Central Government or a State Governmentand Is governed by any other Act or by any rules Providing for payment of gratuity Note: The Teachers’ have also been covered under the definition of employee~&4: When to pay Gratuity Gratuity is payable to’a person in the following situations: 1) Superannuation 2) Resignation / Retirement 3) Termination because of disablement 4) Death Note: Gratuity is payable only after an employee completes 5 continuous years of service. However, in the case of death or disablement, the condition of minimum 5 years of continuous service is not applicable.4: AMOUNT OF GRATUITY PAYABLE Gratuity is payable at the rate of 15 days’ wages (Basic Salary + Dearness Allowance, as per the latest salary/wages drawn) For every completed year of service In the Last year of service if the employee has completed more than 6 months, it will be treated as full year Note The per day wages is calculated by dividing the monthly salary/wages by 26 days. Maximum gratuity payable under this Act is Rs. 10 lakhs. In case of seasonal establishments, gratuity is payable at the rate of 7 days’ wages for each season.4: AMOUNT OF GRATUITY PAYABLE 9 &> as SRigS ene Gratuity is payable at the rate of ae 15 days’ wages (Basic Salary + Dearness Allowance, as per the latest salary/wages drawn) For every completed year of service = x2 = x80 = In the Last year of service if the employee has completed more than 6 months, it will be treated as full year Note The per day wages is calculated by dividing the monthly salary/wages by 26 days. Maximum gratuity payable under this Act is Rs. 10 lakhs. In case of seasonal establishments, gratuity is payable at the rate of 7 days' wages for each season.Maximum Gratuity Gratuity Act provides for the maximum gratuity of Rs. 10 lakhs. However, If an employee is entitled to receive more than Rs. 10 lakhs as gratuity under a contract with his employer, then he can receive such higher amount of gratuity.4(6) FORFEITURE (Total/Partial) OF GRATUITY Section 4(6) (a) provides that the gratuity of an employee Whose services have been terminated For any act, © willful omission or negligence © Causing any damage or loss to, or destruction of, property belonging to the employer, Shall be forfeited to the extent of the damage or loss so caused.Section 4(6)(b) deals with a case Where the services of an employee have been terminated: a) For riotous and disorderly conduct or any other act of violence on his part, or b) For any act which constitutes an offence involving moral turpitude (provided that such offence is committed by him in the course of his employment.) In such cases, the gratuity payable to the employee may be wholly or partially forfeited13: Attachment Gratuity payable cannot be attached in execution of any decree or order of any 1. Civil, 2. Revenue or 3. Criminal Court.MA: Insurance —- Every employer, obtain an insurance, for his liability for payment towards the gratuity under this Act Make the payment of Premium accordingly In case of Default Penalty : Rs. 10,000/-(Rs. 1000/- per day)~+S: Power to Exempt = 1) AG may Exempt any Establishment. favourable than the benefits conferred under this Act) (If its Employees are in receipt of gratuity or pensionary benefits not less 2) AG may Exempt any Employees or Class of Employees...... (If its Employees are in receipt of gratuity or pensionary benefits not less favourable than the benefits conferred under this Act). Notification may be issued retrospectively 4~6: Nomination 1) Each Employee shall make nomination after completion of 1 year of Continuous service 2) May Distribute Gratuity infavour of more than one Nominee 3) At the time of nomination if he has © Family: Can nominate one or member of family (nomination in favour of other will become void) © No Family: Can nominate any Person (this will become void if he acquires the family) 4) Nomination be sent to employer (who will keep it in safe custody)IMPORTANT POINTS Bharat Gold Mines Ltd. v. Regional Labour Commissioner when an offence of theft under law involves moral turpitude, gratuity stands wholly forfeited in view of section 4(6) of the Act. It has been held that any decision to forfeit the gratuity can be taken only after giving an opportunity of being heard to the concerned employee. Air india v. Authority under the Gratuity Act Gratuity of an employee cannot be withheld on the ground of non vacation of service quarters.Payment of Gratuity Act, 1972 The Payment of Gratuity Act, 1972 (the Gratuity Act) is applicable to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments with ten or more employees. ... Gratuity is fully paid by the employer, and ‘no part comes from an employee's salary. The Applicability and Calculation of Gratuity in India Gratuity is a lump sum that a company pays when an employee leaves an organization, and is one of the many retirement benefits offered by a company to an employee. In India, gratuity rules and requirements are set out under the Payment of Gratuity Act, 1972. An employer may also choose to pay gratuity outside of that which is required by this Act. The Payment of Gratuity (Amendment) Act, 2018 enables the government to raise the limit of tax-free gratuity. The change can be made through an executive order by the prime minister, On February 1, 2019, India’s interim budget hiked the tax-free gratuity limit from Rs 20 lakh The government had doubled the tax free gratuity to Rs 20 lakh (US$27,904) in March, 2018, In this article, we discuss India’s gratuity rules in terms of: + Applicability; * Calculation; + Tax exemption; + Payment; and + Forfeiture.Applicability The Payment of Gratuity Act, 1972 (the Gratuity Act) is applicable to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments with ten or more employees. The full official text of the Gratuity Act can be found here. Gratuity is fully paid by the employer, and no part comes from an employee’s salary. To be eligible for gratuity under the Gratuity Act, an employee needs to have at least five full years of service with the current employer, except in the event that an employee passes away or is rendered disabled due to accident or illness, in which case gratuity must be paid. Gratuity is paid when an employee: + Iseligible for superannuation; + Retires; + Resigns; or * Passes away or is rendered disabled due to accident or illness (if an employee passes away, gratuity will be paid to the employee's nominee). Gratuity Calculation Formula Gratuity in India is calculated using the formula: Gratuity = Last Drawn Salary x 15/26 x No. of Years of Service Notes: + The ratio 15/26 represents 15 days out of 26 working days in a month. + Last drawn salary = Basic Salary + Dearness Allowance. + Years of Service are rounded down to the nearest full year. For example, if the employee has a total service of 20 years, 10 months and 25 days, 21 years will be factored into the calculation.Tax Exemption Gratuity received under the Gratuity Act is exempt from taxation to the extent that it does not exceed 15 days” salary for every completed year of service calculated on the last drawn salary (subject to a maximum of US$41,856 or Rs 30 lakh). Any other gratuity is exempt to the extent that it does not exceed one half-month salary for each year of completed service calculated on the basis of average salary for 10 immediately preceding months. The upper limit of US$41,856 applies to the aggregate of gratuity received from one or more employers in the same or different years. India’s income tax department has put out a taxable gratuity calculator, which can be accessed here. Payment The employer shall arrange to pay the amount of gratuity within 30 days from the date it is billed to the person to whom the gratuity is allocated, If the amount of gratuity payable under the section is not paid by the employer within the period specified, he will have to pay simple interest on it from the date on which the gratuity becomes payable at the rate not exceeding the rate stipulated by the federal government. Gratuity should be paid in cash, or if so desired by the payee, by demand draft or bank check to the eligible employee, nominee, or legal heir. Forfeiture ‘The gratuity payable to an employee shall be wholly forfeited if: The service of such employee has been terminated for his or her lawless or disorderly conduct or any other act of violence on his or her part; or 1361Pace Industrial Ralations and lahourThe service of such employee is terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him or her in the course of his or her employment. In order to forfeit gratuity of an employee, there must be a termination order containing charges as established to the effect that the employee was guilty of any of the aforesaid misconducts. In one case, it has been held that in the absence of a termination order containing any of the above allegations, the gratuity of an employee cannot be forfeited.