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Payment of Gratuity Act, 1972

Purpose

Gratuity Act 1972 is a statutory benefit paid to the employees who have rendered continuous service for at least five years. It is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job.

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.

Eligibility

  • A person is eligible to receive gratuity only if he has completed minimum five years of continues service with an organisation.
  • However, it can be paid before the completion of five years at the death of an employee or if he has become disabled due to accident or disease.

Rate of Contribution

  • Gratuity is payable at the rate of 15 days' last drawn wages by the employee concerned for every completed year of his service or part thereof in excess of 6 months.
  • Once the act applies, It continues to apply even if employment strength falls below 10.

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