Business Laws and Ethics · Payment of Gratuity Act, 1972

Applicability and Eligibility for Gratuity under the Code on Social Security

Updated 10 October 2026 · Fact-checked

Under Section 53 of the Code on Social Security, 2020, gratuity is payable when employment ends after at least five years of continuous service, on superannuation, retirement, resignation, death, disablement or end of a fixed term contract. Five years is not needed for death, disablement or fixed term expiry.

Understand Applicability and Eligibility for Gratuity

Gratuity is a lump sum an employer pays when a long-serving employee leaves. It is a reward for service. The Payment of Gratuity Act, 1972 used to govern it. Section 164 of the Code on Social Security, 2020 repeals that Act, so for the June 2027 term you should answer from Section 53 of the Code. The old Act's name still appears in the chapter title, so mention both.

The core rule is in Section 53(1). Gratuity is payable on termination of employment after the employee has rendered continuous service for not less than five years. The employment must end in one of the listed ways: (a) superannuation, (b) retirement or resignation, (c) death or disablement due to accident or disease, (d) termination of the contract period under fixed term employment, or (e) any event notified by the Central Government.

There are exceptions to the five-year condition. The second proviso says five years of continuous service is not necessary where employment ends due to death, disablement, expiry of fixed term employment, or any event notified by the Central Government. The first proviso says that for a working journalist (as defined in the Working Journalists Act, 1955) the five years is deemed to be three years.

Fixed term employees are the big change. They get gratuity when the contract period ends, even if they have served less than five years. The third proviso to Section 53(2) says gratuity for a fixed term employee or a deceased employee is paid on a pro rata basis. Note that the five-year test does not apply to them, but resignation or other exits before the contract ends are not the listed event for this exception.

On who is covered: Explanation 1 to Section 53 says that an employee does not include a person who holds a post under the Central or a State Government and is governed by any other Act or rules providing for gratuity. Disablement means disablement that incapacitates the employee for the work he could do before the accident or disease (Explanation 2). The lists of establishments covered come from the Code's applicability provisions, which are not reproduced here, so learn them from your study material.

Key rules to remember

General eligibility rule: Continuous service ≥ 5 years + termination on a listed ground (Section 53(1)); Listed grounds: superannuation; retirement or resignation; death or disablement; end of fixed term contract; notified event.
Exceptions to five years: No 5-year need if exit is due to death, disablement, expiry of fixed term employment or a notified event; Second proviso to Section 53(1).
Working journalist: 5 years is deemed 3 years; First proviso to Section 53(1). Applies to working journalists as defined in the 1955 Act.
Fixed term and deceased employee: Gratuity paid on pro rata basis; Third proviso to Section 53(2).
Excluded persons: Government post holders governed by another Act or rules on gratuity are not employees; Explanation 1 to Section 53.
Death of employee: Gratuity goes to nominee, or to heirs if no nomination; Third proviso to Section 53(1). A minor's share is deposited with the notified competent authority until majority.

How to solve Applicability and Eligibility for Gratuity questions

Use this order for any question asking whether an employee is entitled to gratuity.

1Identify the law: state that the Code on Social Security, 2020, Section 53, applies and that it repeals the Payment of Gratuity Act, 1972 (Section 164).
2Check the person: is the employee a Government post holder covered by another gratuity Act or rules? If yes, the Code's gratuity does not apply.
3Note how employment ended: superannuation, retirement, resignation, death, disablement, fixed term expiry or notified event.
4Check the service period against five years of continuous service. Apply three years if the person is a working journalist.
5Test for exceptions: death, disablement, fixed term expiry or notified event remove the five-year condition.
6Check any forfeiture facts under Section 53(6), such as damage to employer property or violence.
7State the conclusion in one line, then add the pro rata point for fixed term or deceased employees, and who receives payment on death.

Quickest way: Two-gate check

When to use it: For MCQs and short case questions where you have about a minute.

Gate 1: was the exit on a listed ground? If resignation before the fixed term ends, treat it as normal and apply five years.
Gate 2: is the exit death, disablement or fixed term expiry? If yes, skip the five-year test.
Otherwise count the years: at least five (three for working journalists) means eligible.
Scan for traps: Government employee under another Act, or dismissal for violence or moral turpitude.

Common mistakes in Applicability and Eligibility for Gratuity

Saying five years is compulsory in every case.
Students memorise the headline rule and skip the provisos.
Fix: Always add the second proviso: no five years for death, disablement, fixed term expiry or notified events.
Quoting only the Payment of Gratuity Act, 1972 as the current law.
Older books and notes still use it.
Fix: Write that Section 164 of the Code repeals the 1972 Act and answer under Section 53 of the Code.
Denying gratuity to a fixed term employee with under five years.
Students apply the general rule without the fixed term exception.
Fix: If the contract period has ended, gratuity is payable, on a pro rata basis.
Applying the 3-year rule to all media or office staff.
Students remember 'journalist' loosely.
Fix: The three-year rule is only for working journalists as defined in the 1955 Act.
Treating a Government employee as covered by the Code gratuity.
Students ignore Explanation 1.
Fix: Check whether the person holds a Government post and is governed by another Act or rules on gratuity. If so, excluded.
Forgetting who receives gratuity after death.
Focus stays on eligibility, not payment.
Fix: Write: nominee first, otherwise heirs; a minor's share is deposited with the notified authority.

Worked examples

Example 1

Ravi Kumar worked for Sundaram Textiles Ltd. for 4 years and 3 months and then resigned. He claims gratuity. Advise him. Would your answer change if he had died in service at the same point?

Show the solution

Law: Section 53(1) of the Code on Social Security, 2020 applies.
Resignation is a listed ground, but gratuity requires continuous service of not less than five years.
Ravi has served 4 years 3 months, which is less than five years. No exception applies to a resignation.
If he had died in service, the second proviso removes the five-year condition, so gratuity would be payable.
In that case it is paid to his nominee, or to his heirs if there is no nomination, on a pro rata basis (Section 53(2), third proviso).

Answer: Ravi is not entitled to gratuity on resignation, as he has under five years of service. If he had died, gratuity would be payable without the five-year condition, to his nominee or heirs.

Example 2

Meera is engaged by Kaveri Software Pvt. Ltd. on a fixed term contract of 2 years. Her contract ends on expiry. She asks for gratuity. Is she eligible? On what basis is it paid?

Show the solution

Section 53(1)(d) lists termination of contract period under fixed term employment as a ground for gratuity.
The second proviso says five years of continuous service is not necessary where employment ends due to expiry of fixed term employment.
So Meera's two years of service do not bar her claim.
The third proviso to Section 53(2) says gratuity for a fixed term employee is paid on pro rata basis.
Forfeiture applies only in cases under Section 53(6), such as damage or violence, which do not arise here.

Answer: Meera is eligible for gratuity on expiry of her fixed term contract without completing five years. It is paid on a pro rata basis.

Exam tips

Write the section number (Section 53) and name the Code, then mention that the 1972 Act is repealed by Section 164.
In MCQs, watch for options that say five years is always required or never required. Both are wrong.
For case studies, list the ground of exit first, then service years, then exceptions. This earns step marks.
Learn the three special groups: working journalists (three years), fixed term employees (no five years, pro rata) and deceased employees (nominee or heirs, pro rata).
Do not quote gratuity amounts or ceiling limits from memory here. Those belong to the calculation topic and are notified by the Central Government.

Practice questions from Payment of Gratuity Act, 1972

Applicability and Eligibility for Gratuity in other exams

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

CS ProfessionalGratuity and Maternity Benefit

Applicability and Eligibility for Gratuity: frequently asked questions

Is five years of service compulsory for gratuity?

Generally yes, under Section 53(1) of the Code on Social Security, 2020. But it is not needed on death, disablement, expiry of fixed term employment or a notified event. Working journalists need only three years.

Do fixed term employees get gratuity under the Code on Social Security, 2020?

Yes. Termination of the contract period under fixed term employment is a listed ground, and five years of service is not necessary. Gratuity is paid on a pro rata basis.

Is the Payment of Gratuity Act, 1972 still the law?

Section 164 of the Code on Social Security, 2020 repeals it. Actions taken under the old Act are deemed to be taken under the corresponding provisions of the Code, as long as they are not contrary to it.

Who gets the gratuity if the employee dies?

It is paid to the nominee, or to the heirs if no nomination was made. If a nominee or heir is a minor, the share is deposited with the competent authority notified by the appropriate Government until the minor attains majority.