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Unit 14: The Payment of Gratuity Act, 1972

Provided that where the offence relates to non-payment of any gratuity payable under this Act, Notes
the employer shall be punishable with imprisonment for a term which shall not be less than six
months but which may extend to two years unless the court trying the offence, for reasons to be
recorded by it in writing, is of opinion that a lesser term of imprisonment or the imposition of a
fine would meet the ends of justice.

Notes The Gratuity limit has been raised from 3.5 lakhs to 10 lakhs
There has been amendment in the Payment of Gratuity Act 1972, following proposal of
Labor and Employment Ministry, demands from trade unions and others to remove the
ceiling or increase the maximum payable amount, which was fixed in 1997. It shall come
into force on 24 May 2010 as per the Notification in the Official Gazette.
Maximum Limit: The Gratuity limit as per Section 4(3) has been raised from 3.5 lakhs to 10
lakhs. This will give advantage to both private and public sector employees. According
to this new amendment, the maximum gratuity exemption as per IT Act also increases to
` 10,00,000.
Determination of Gratuity Amount

For every completed year of service or part thereof in excess of six months, the employer
shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of
wages last drawn by the employee concerned.
The Gratuity calculation is done as per the last average remuneration drawn and time in
years served by an employee.

The amount of gratuity payable to an employee shall not exceed ` 10,00,000 (increased
from ` 3,50,000).
In order to compute the gratuity payable in case of employees em ployed in seasonal
establishments, daily wages, or piece rated employ ees. Computation will be as per the
provision of the Act.
It can be formulated as follows: Basic + DA (Wages Last drawn)* 15days 126 * number of
years of continuous service (six months or less to be ignored and more than six months to
be counted as full year)

Task E was an employee of Tea Estate Ltd. The whole of the undertaking of Tea
Estate Ltd. was taken over by a new company - Asia Tea Estate Ltd. The services of E
remained continuous in new company. After serving for one year E met with an accident
and became permanently disabled. E applied to the new company for the payment of
gratuity. The company refused to pay gratuity on the ground that E has served only for a
year in the company. Examine the validity of the refusal of the directors in the light of the
provisions of the Payment of Gratuity Act, 1972.

Self Assessment

State whether the following statements are true or false:
13. Section 3 authorises the appropriate- government to appoint any officer as a controlling
authority for the administration of the Act.

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