The document summarizes key aspects of the Payment of Gratuity Act in India. It provides an introduction to gratuity and outlines the objectives, rules, eligibility criteria, and formulas used to calculate gratuity amounts. It also discusses amendments made to the Act in 2020 to increase the tax-exempt gratuity limit from Rs. 10 lakh to Rs. 20 lakh. Common frequently asked questions about gratuity are also addressed.

1. HRIDYA SHARMA 6138
CHARVI UPADHYAY 5936
SAKSHI MISTRY 5946
NEHA KONDIRAM 5948
PRATIKSHA NADAR 5950

3. INDEX
1.INTRODUCTION
TO GRATUITY ACT
2.OBJECTIVE OF
THE ACT
3.RULES OF THE
GRATUITY
4.ACT GOVERNING
GRATUITY
5.PEOPLE ELIGIBLE
FOR GRATUITY
6.FORMULAE
GOVERNING
GRATUITY
7.GRATUITY ACT
AMENDMENT
8.FAQ’S ON THE
GRATUITY ACT

4. INTRODUCTION TO GRATUITY ACT
Gratuity is given by an employer to his employee for the services rendered by
him during the period of employment. A person is eligible to receive gratuity
only if he has completed five years of service with an organization.
The Payment of Gratuity Act came into force in the year 1972. The act covers
employees working in mines, companies, ports, plantations and other such
establishments that have more than ten people employees.
An Act to provide for a scheme for the payment of gratuity to employees
engaged in factories, mines, oilfields, plantations, ports, railway companies,
shops or other establishments and for matters connected therewith or
incidental thereto.

5. OBJECTIVE OF THE ACT
1. Continuous service
2. Controlling authority
3. Payment of gratuity
4. Compulsory insurance
5. Power to exempt
6. Nomination
7. Determination amount of
gratuity
8. Inspectors appointed for powers
8. Recovery of gratuity
9. Penalties

6. RULES OF THE GRATUITY ACT
Gratuity is payable if an organisation employs 10 or more individuals .
Employees have to complete 5 years of service to be eligible.
Gratuity can be paid not only upon retirement .
Calculation of gratuity is based on the last drawn salary
and years of service.
Gratuity can be forfeited for several reasons .
Employers cannot refuse to pay gratuity even during bankruptcy .
Gratuity up to the tune of Rs.20 Lakh is exempt from taxation.
Income tax applicability differs for different employees.
The Rs.20 Lakh threshold for tax exemption is for cumulative gratuity received.
Gratuity paid to the widow or legal heir of an employee will be exempt of tax.

7. ACT GOVERNING GRATUITY ACT-SEC
2A
An employee shall be said to be in continuous service for a period if he has, for that period, been in
uninterrupted service, including service which may be interrupted on account of sickness, accident,
leave, absence from duty without leave, lay-off, strike or a lock-out or cessation of work not due to
any fault of the employee, whether such uninterrupted or interrupted service was rendered before or
after the commencement of this Act.
where an employee is not in continuous service within the meaning of clause (1), for any period of
one year or six months, he shall be deemed to be in continuous service under the employer-
(a) for the said period of one year, if the employee during the period of twelve calendar months
preceding the date with reference to which calculation is to be made, has actually worked under the
employer for not less than.

8. (b) for the said period of six months, if the employee during the period of six calendar months
preceding the date with reference to which the calculation is to be made, has actually worked under
the employer for not less than.
 where an employee, employed in a seasonal establishment, is not in continuous service within the
meaning of clause (1), for any period of one year or six months, he shall be deemed to be in
continuous service under the employer for such period if he has actually worked for not less than
seventy- five per cent. of the number of days on which the establishment was in operation during
such period.

9. PEOPLE ELIGIBLE FOR GRATUITY ACT
The Payment and Gratuity Act applies to all factories, mines, oilfields, plantation, ports, and railways.
In addition to this, it also applies to every shop and establishments employing 10 or more people.
As per the Act, an employee should render five years of continuous service with the existing
employer to become eligible for gratuity. However, Section 2A of the same Act, defines the term
'continuous service' under which many of those who have not worked continuously for five years also
become eligible for gratuity.
Those working in underground mines or those working with organizations working for less than 6
days in a week would be deemed to have completed 5th year of service if they had already worked
for 190 days continuously since the end of 4th year of his employment, making him eligible for
receiving gratuity.

10. FORMULAE GOVERNING GRATUITY
ACT
The Payment of Gratuity Act came into force in the year 1972.
The act covers employees working in mines, companies, ports, plantations and other such
establishments that have more than ten people employees.
Unlike the provident fund, the gratuity amount is totally paid by the employer without any
contribution from the employee.
To calculate how much gratuity is payable, the Act has divided non-government employees into two
categories – Employees who come under this Act and employees who are not covered under the Act.
The formula is: (15 X last drawn salary X tenure of working) divided by 26 The last
salary drawn includes the basic salary, dearness allowance and commission received
on sales. The gratuity amount can be calculated based on half month's salary for
each completed year.

11. Example: For instance, the last drawn basic salary of Mr. Ajay is ₹ 40,000/ month and his
employment with DCB Company was for 26 years. In this case, the gratuity will be:
Gratuity Amount = (15 * Salary Last Drawn * Employment Period)/ 26
Gratuity Amount of Mr. Ajay = (15*40000*26)/26 = ₹ 6,00,000
Example: For instance, Mr. Ajay is working with a firm that does not come under Payment of Gratuity
Act. However, the basic salary that he last drew was ₹ 30,000/ month and he has served that
organization for 25 years.
Gratuity Amount = (15 * 30000 *25)/ 30 = ₹ 3,75,000

12. GRATUITY ACT AMENDMENT 2020
The Parliament passed the Payment of Gratuity (Amendment) Bill which will increase the ceiling of tax-
free gratuity amount to Rs 20 lakh from Rs 10 lakh for employees falling under the Payment of
Gratuity Act.
Further, this will allow the government to increase the gratuity ceiling from time to time without
amending the law.
After the implementation of the 7th Pay Commission, the ceiling of gratuity amount for central
government employees was doubled to Rs 20 lakh.
Prime Minister Narendra Modi has welcomed the passage of Gratuity (amendment) Bill by parliament.
PM tweeted - A significant pro-people measure passed in Parliament. Will benefit lakhs of Indians.

13. It appears that the proposed increase in tax-exempt gratuity limit will immediately benefit mostly
those with high salaries as not many people would be earning a basic salary of over Rs 70,000 a
month at present.
The law is applicable to employees, who have completed at least five years of continuous service in an
establishment that has 10 or more persons.

14. FAQ’S ON GRATUITY ACT
✅Does the gratuity amount have any upper limit?
✅How to calculate gratuity for private sector employees?
✅How much gratuity is tax exempt?
✅How much time does an employer take to release the gratuity amount?
✅Is it possible for contractual or temporary employees to get the Gratuity benefits?
✅If a person has resigned from his/her job after servicing the company for 4.5 years, will he/she
receive the gratuity?
✅Is notice period considered for gratuity?
✅Can someone get a gratuity if It they resign?

15. THANK YOU