Business Laws and Ethics · Payment of Gratuity Act, 1972

Gratuity under the Code on Social Security, 2020: Overview

Updated 10 October 2026 · Fact-checked

Gratuity is a lump sum an employer pays an employee as a reward for long service. The Payment of Gratuity Act, 1972 governed it for decades. The Code on Social Security, 2020 subsumes it in its gratuity chapter, and Section 164 repeals the old Act with savings from the date the Code's provisions are notified into force. Answer by stating background, repeal, savings and the Code's chapter.

Understand Gratuity under Code on Social Security, 2020: Overview

Gratuity is a payment by an employer to an employee, in gratitude for long service, when the employee leaves the job. It is a form of social security. It is not a bonus and not a salary. It is paid because of years of service.

The Payment of Gratuity Act, 1972 gave this payment a statutory base. Before it, gratuity depended on contract, custom or the employer's goodwill. The Act made it a legal right for covered employees in covered establishments, and set rules for eligibility, amount, payment, nomination, forfeiture and enforcement.

The Code on Social Security, 2020 merged nine central labour laws on social security into one Code. The Payment of Gratuity Act, 1972 is one of them. Other laws it absorbed include the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees' State Insurance Act, 1948. So gratuity is now a chapter within the Code, not a separate Act.

The repeal is done by Section 164 (Repeal and savings). In plain words, it lists the enactments that stand repealed, and then saves what was done under them. The repeal and the savings operate from the date the relevant provisions of the Code are notified into force. From that date, things done and actions taken under the old laws are saved so far as not inconsistent with the Code. This avoids a legal gap when the old Act goes.

For the exam, learn the story in order: why gratuity exists, which Act gave it force, which Code now holds it, and how Section 164 links the two. Details such as eligibility and calculation sit in the next topics. Always check the date on which the Code is notified to come into force, as the exam will follow the position in your study material.

Key rules to remember

Meaning of gratuity: Gratuity = lump-sum payment by employer to employee for service rendered, on leaving employment; It is a statutory benefit for covered employees, not a bonus or wage.
Repeal rule: Section 164, Code on Social Security, 2020 = repeal of listed enactments + savings, from the date the relevant provisions are notified into force; The Payment of Gratuity Act, 1972 is among the enactments listed for repeal. The repeal takes effect only on notification.
Savings rule: Things done and actions taken under the old laws are saved so far as not inconsistent with the Code; Say 'so far as not inconsistent with the Code'. Do not say they continue unconditionally.
Structure: Old: separate Act (1972) → New: gratuity chapter within one Code (2020); The Code merges nine social security laws.

How to solve Gratuity under Code on Social Security, 2020: Overview questions

Use this method for any question on the background, repeal or placement of gratuity law.

1Read the question and decide if it asks for background, repeal and savings, or Code provisions.
2Define gratuity in one line as a lump-sum payment for long service.
3Name the Payment of Gratuity Act, 1972 and state its purpose: a legal right to gratuity for covered employees.
4State that the Code on Social Security, 2020 merged nine social security laws, including this Act.
5Explain Section 164: listed laws are repealed and past actions are saved so far as not inconsistent with the Code, from the date the relevant provisions are notified into force.
6Link to the Code's gratuity chapter and mention that eligibility, calculation and payment are dealt with there.
7Close with one line on effect: no gap in law, and continuity for existing rights.

Quickest way: Four-word memory chain: Why, Act, Code, Savings

When to use it: Use it for MCQs and for 3-4 mark short notes when time is tight.

Why: gratuity rewards long service.
Act: Payment of Gratuity Act, 1972 gave it legal force.
Code: Code on Social Security, 2020 absorbs it in a chapter.
Savings: Section 164 repeals the Act from the date of notification, but saves actions taken under it so far as not inconsistent with the Code.

Common mistakes in Gratuity under Code on Social Security, 2020: Overview

Saying the Payment of Gratuity Act, 1972 is still the only law on gratuity.
Older notes and books are built around the 1972 Act.
Fix: Write that the Code subsumes it. Use the Act's name only as background.
Saying the Code merges only gratuity, provident fund and ESI.
These three are the best known.
Fix: Say the Code merges nine central social security laws, and gratuity is one of them.
Writing that Section 164 only repeals, with no savings.
The heading is remembered as just 'repeal'.
Fix: Always write 'repeal and savings', and explain that past actions are saved so far as not inconsistent with the Code.
Treating savings as unconditional, or the repeal as effective at once.
Students overstate the rule and forget the commencement date.
Fix: Add the condition: saved so far as not inconsistent with the Code. Also say the repeal operates from the date the relevant provisions are notified into force.
Mixing gratuity with bonus or wages.
All are payments by employers.
Fix: Gratuity depends on years of service and is paid on leaving. Bonus is linked to profit or productivity, and wages are regular pay.

Worked examples

Example 1

Explain how the Payment of Gratuity Act, 1972 stands affected by the Code on Social Security, 2020. (5 marks)

Show the solution

Background: the 1972 Act gave employees a statutory right to gratuity as a reward for long service.
The Code on Social Security, 2020 consolidated nine central social security laws into one Code.
The Payment of Gratuity Act, 1972 is among the enactments subsumed, and its subject matter now sits in the gratuity chapter of the Code.
Section 164 provides for repeal of the listed enactments, including the 1972 Act, from the date the relevant provisions of the Code are notified into force.
It also saves things done and actions taken under the old Act, so far as not inconsistent with the Code.
Effect: no gap in the law, and gratuity rights continue under the Code.

Answer: The 1972 Act is repealed by Section 164 of the Code from the date the relevant provisions are notified into force. Its subject is covered by the Code's gratuity chapter, with savings for past actions so far as not inconsistent with the Code.

Example 2

Which of the following is correct? (a) Gratuity is a profit-linked annual payment (b) The Code on Social Security, 2020 contains a chapter on gratuity (c) Section 164 of the Code extends the 1972 Act indefinitely (d) The Code covers only gratuity

Show the solution

Option (a) is wrong: gratuity is linked to length of service, not profit.
Option (c) is wrong: Section 164 repeals the Act, it does not extend it.
Option (d) is wrong: the Code covers many benefits, including provident fund and ESI.
Option (b) is correct: gratuity is dealt with in a chapter of the Code.

Answer: (b)

Exam tips

For a short note, write in the order: meaning, 1972 Act, Code, Section 164, effect.
Quote Section 164 by number only with its title, Repeal and savings.
In MCQs, watch for options that say the 1972 Act continues unchanged, that savings are unconditional, or that the repeal applies before notification.
Keep this topic short. Detailed marks come from eligibility, calculation and payment, so revise those topics too.

Practice questions from Payment of Gratuity Act, 1972

Gratuity under Code on Social Security, 2020: Overview in other exams

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

Gratuity under Code on Social Security, 2020: Overview: frequently asked questions

Is the Payment of Gratuity Act, 1972 repealed?

Section 164 of the Code on Social Security, 2020 repeals it and gratuity moves into the Code's own chapter. The repeal operates from the date the relevant provisions of the Code are notified into force. Read the commencement position in your study material and write the answer in terms of the Code.

What does Section 164 of the Code on Social Security, 2020 do?

It is the repeal and savings provision. It repeals the listed earlier laws, including the 1972 Act, from the date the relevant provisions are notified into force. It also saves things done and actions taken under them, so far as not inconsistent with the Code.

Why was gratuity brought into the Code?

The Code merges nine central social security laws to simplify and unify them. Gratuity is one of those subjects, so it now forms a chapter of the Code.

Do I still need to study the 1972 Act for CMA Intermediate?

Use it as background to understand the concepts. For answers, follow the Code's provisions as given in your study material.