The Payment of Gratuity Act, 1972, stands as a pivotal legislation in India, offering financial security and recognition to employees for their dedicated service. Enacted to ensure the payment of gratuity to employees in various sectors, this act embodies the principle of social security and serves as a cornerstone of labour rights and welfare. This comprehensive guide aims to delve into the intricacies of the Payment of Gratuity Act, 1972, elucidating its provisions, significance, implications, and practical implications for employers and employees alike.
Understanding the Payment of Gratuity Act, 1972
The Payment of Gratuity Act 1972, is a legislation enacted by the Indian Parliament to regulate the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, or other establishments. The primary objective of this act is to provide financial assistance to employees as a token of appreciation for their long and meritorious service.
In addition to the significant benefits provided by the Payment of Gratuity Act, 1972, employees may also leverage their gratuity towards fulfilling their dream of homeownership through home loans. As employees accrue gratuity over the years of service, they can utilise this lump sum amount as a down payment or to repay a portion of their home loan, thereby reducing the financial burden associated with purchasing a house.
Key provisions of the Act
The Payment of Gratuity Act 1972 contains several key provisions aimed at protecting the interests of employees:
- Eligibility criteria: According to the act, an employee becomes eligible for gratuity after completing five years of continuous service with an employer. However, in the case of death or disablement due to accident or illness, the condition of five years' service is waived off.
- Calculation of gratuity: Gratuity is calculated based on the employee's last drawn salary and the number of years of completed service. The formula for calculating gratuity is as follows: Gratuity = (Last drawn salary × 15/26) × Number of completed years of service.
- Maximum limit: As per the act, the maximum amount of gratuity payable to an employee shall not exceed Rs. 20 lakh (as of the current limit in 2024), irrespective of the number of years of service.
- Nomination: The act mandates that every employee must nominate a nominee who would receive the gratuity amount in case of the employee's death. The nomination can be made by filling out the requisite form provided by the employer.
- Employer's obligation: It is the responsibility of the employer to pay gratuity to eligible employees within 30 days from the date it becomes payable. Failure to do so may result in penalties under the act.
Coverage and applicability
The Payment of Gratuity Act 1972 applies to:
- Factories, mines, oilfields, plantations, ports, and railway companies: These establishments are automatically covered under the Act.
- Shops and establishments: Any shop or establishment employing ten or more persons on any day in the preceding 12 months.
- Other establishments: Other establishments notified by the government from time to time.
Eligibility criteria for gratuity
To be eligible for gratuity under the Payment of Gratuity Act 1972, an employee must fulfill the following criteria:
- Length of service: The employee must have completed at least five years of continuous service with the same employer. However, this condition is waived in case of death or disablement.
- Nature of employment: The employee must be working in an establishment covered by the Act.
Calculation of gratuity amount
The gratuity amount payable to an employee is calculated using the formula:
Gratuity = (Last Drawn Salary × Number of Completed Years of Service × 15) / 26
Where:
- Last drawn salary includes basic salary, dearness allowance, and any commission based on sales.
- Number of completed years of service is the total number of years the employee has worked with the employer.
- 15/26 represents 15 days out of 26 working days in a month.
Payment conditions and process
The process for payment of gratuity under the Payment of Gratuity Act 1972 is as follows:
- Application: The employee or their nominee must submit an application in the prescribed form to the employer for claiming gratuity.
- Employer’s responsibility: Upon receipt of the application, the employer must verify the details and determine the amount payable.
- Payment: The employer must pay the gratuity amount within 30 days of it becoming due. If the payment is delayed, the employer is liable to pay interest on the amount.
In case of disputes, the employee can approach the controlling authority under the Act for resolution. The controlling authority has the power to adjudicate disputes and direct the employer to make the payment.
Consider Bajaj Housing Finance Home Loan
As you navigate the realm of financial planning and contemplate utilizing your gratuity towards homeownership, Bajaj Housing Finance offers tailored home loan solutions to turn your dream of owning a home into reality. With our seamless and customer-centric approach, we understand the significance of providing hassle-free financial assistance to individuals seeking to embark on their homeownership journey.
Here are a few reasons why you should choose Bajaj Housing Finance Home Loan:
- Flexible repayment options: Benefit from extended repayment periods of up to 32 years, allowing you to choose a plan that best aligns with your financial situation, making repayment more manageable.
- Competitive interest rates: Start your journey to homeownership with attractive interest rates beginning at just 8.25%* p.a, and EMIs as low as Rs. 741/lakh*, making home ownership more affordable.
- Customisable loan options: Customize your home loan to suit your specific needs with varying loan amounts, and repayment terms, providing you with greater control over the home-buying process.
- Top-up loan facility: Increase your financial flexibility with a top-up loan facility, offering additional funds of Rs. 1 crore* or higher at competitive interest rates and minimal documentation, simplifying the management of a home loan balance transfer.
Explore Bajaj Housing Finance Home Loan today and take the first step towards turning your dream home into a reality.
