Payment of Gratuity Act, 1972 for CMA Intermediate

What this chapter covers

Payment of Gratuity Act, 1972: topics in the order to study them

1. 1Gratuity under Code on Social Security, 2020: OverviewStart here to see what gratuity is, why it is paid, and how the Code and its rules fit together before you meet the details.
2. 2Key Definitions: Employee, Employer, Continuous Service, WagesEvery later rule uses these terms, and the calculation depends on what counts as wages and service.
3. 3Applicability and Eligibility for GratuityOnce definitions are clear, you can decide which establishments are covered and who qualifies, including the exceptions to the service condition.
4. 4Calculation and Maximum Limit of GratuityCalculation needs eligibility and definitions first, and it is the part where you can score full numerical marks.
5. 5Payment, Nomination and Determination of GratuityThis covers the process after the amount is known: who gets paid, when, and how disputes on the amount are handled.
6. 6Forfeiture, Exemption, Penalties and Gratuity FundStudy this last, as these are exceptions and consequences that make sense only after you know the normal rule.

How to prepare Payment of Gratuity Act, 1972

1. Read the overview once and write a three-line summary in your own words: what gratuity is, who pays, who receives.
2. Make a one-page definitions sheet for employee, employer, continuous service and wages. Note what is included and excluded in each, using your ICMAI study material for the exact wording.
3. List the eligibility conditions as a short checklist: covered establishment, the service requirement, and the cases where the service requirement does not apply, such as death or disablement.
4. Practise the calculation with five or six varied cases: monthly-rated employee, part year of service, a figure above the ceiling, and a fixed-term employee. Write each in steps: wages, rate, years, result, then ceiling check.
5. Learn payment and nomination as a sequence: nomination, determination, notice, payment, dispute route. Then learn forfeiture grounds as a separate short list.
6. Read how the Code leaves matters to rules, such as section 155 and the section 57 insurance and approved fund arrangements, so you can answer a question on the gratuity fund.
7. Finish with MCQs from past papers and one timed written answer, then check each condition you quoted against the study material.

Common mistakes in Payment of Gratuity Act, 1972

• Using the wrong wage base, such as total salary instead of the wages as defined for gratuity.

  Fix: Always start the answer by stating the wages figure with the components you included, and use the definition in the study material.

• Dividing by 30 or 31 instead of 26 for a monthly-rated employee.

  Fix: Write the formula in full each time: wages ÷ 26 × 15 × years. Memorise it as one line.

• Rounding service wrongly, either ignoring a part year or counting any fraction as a year.

  Fix: Count a year only when the extra period exceeds six months. Write the service breakdown, such as 8 years 7 months becomes 9, before computing.

• Forgetting the ceiling and giving an amount above the limit.

  Fix: Add a final line to every calculation: compare with the maximum limit and state the payable amount.

• Applying the five-year rule to every case, including death or disablement and fixed-term employees.

  Fix: Keep an eligibility checklist and test each case against the general rule and then the exceptions.

• Confusing the 1972 Act's provisions with the Code on Social Security, 2020, or quoting section numbers from memory.

  Fix: Answer using the Code's framework, cite a section only when you are sure of it, and otherwise state the rule in plain words.

Last-day revision: Payment of Gratuity Act, 1972

• ✓Gratuity is a lump sum paid by the employer when service ends, as a reward for long service.
• ✓General eligibility needs a minimum period of continuous service; check the current period in your study material, and note the shorter period for fixed-term employees.
• ✓The service condition does not apply where the employee's service ends by death or disablement.
• ✓Continuous service means uninterrupted service, and it includes certain breaks such as authorised leave, sickness or accident as the law specifies.
• ✓Standard formula for a monthly-rated employee: last drawn wages ÷ 26 × 15 × completed years of service.
• ✓A part of a year exceeding six months is counted as a full year.
• ✓Example: wages ₹26,000, service 10 years: 26,000 ÷ 26 × 15 × 10 = ₹1,50,000.
• ✓Always compare the computed amount with the maximum limit and pay the lower of the two.
• ✓Nomination is made by the employee so that the gratuity can be paid to the nominee on death.
• ✓Forfeiture is allowed only on the grounds set out in the law, such as damage to employer's property or terminable misconduct, and only to the extent the law allows.
• ✓Under section 155 the Central Government makes rules by notification, after previous publication, on many details of the Code.
• ✓Under section 57, employers other than Central or State Government establishments must arrange insurance, or an exemption through an approved gratuity fund on prescribed conditions.

Payment of Gratuity Act, 1972 practice questions

• Under Section 57(3) of the Code on Social Security, 2020, an employer will NOT be registered with the competent authority for gratuity purpo…
• Meena, an employee of a private company in Pune, dies in an accident after 2 years of service. Under Section 53 of the Code on Social Securi…
• Under Section 164 of the Code on Social Security, 2020, which of the following enactments is expressly repealed?
• Kiran is employed by a private firm on a fixed term contract of 18 months, which expires on schedule. Under Section 53 of the Code on Social…
• The Social Security Fund under Section 141 of the Code on Social Security, 2020 established by the Central Government is intended for the so…
• Vikram, an employee of a Chennai firm, became disabled by an accident after four years of service and was then employed on reduced wages. Wh…
• Under the Code on Social Security, 2020, which enactment dealing with gratuity is repealed by Section 164?
• Section 164(2)(a) of the Code on Social Security, 2020 provides that a rule, notification or scheme made under a repealed Act, such as the P…

Payment of Gratuity Act, 1972 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

• CS ProfessionalSocial Security Legislations
• CS ExecutiveThe Code on Social Security, 2020