Page 138 - DMGT306_MERCANTILE_LAWS_II

Unit 7: The Payment of Gratuity Act, 1972

Notes
The Gratuity limit has been raised from 3.5 lakhs to 10 lakhs
Notes
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 1996. It shall come
into force on 24th 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 employed in seasonal
establishments, daily wages, or piece rated employees. Computation will be as per the
provision of the Act.
It can be formulated as follows: Basic + DA (Wages Last drawn) × 15 days × 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:
14. Section 9 stipulates that an aggrieved employee can file an application to the controlling
authority for recovery of the amount of gratuity.
15. The employee and the employer or any other person raising the dispute regarding the
amount of gratuity may make an application to the controlling authority to decide the
dispute.

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