Gift Of Gratuity

The Payment of Gratuity Act, 1972 (“the Principal Act“) has been amended by The Payment of Gratuity (Amendment) Bill, 2017 (“the Amendment Bill“) for the benefit of employees in factories, mines, oil fields, plantations, ports, railway companies, shops or other establishments. Employees1 within the ambit of the Principal Act are paid gratuity if they have provided at least five years of continuous service at the time of termination of services2.

The amendments brought about through the Amendment Bill are as follows:

  • The Amendment Bill has amended Section 2A of the Principal Act which deals with ‘Continuous Service’. In keeping with The Maternity Benefit (Amendment) Act, 2017 wherein female employees have been granted a maximum maternity leave of 26 weeks instead of 12 weeks; the Amendment Bill has eliminated the reference to the 12 weeks maternity leave period and has empowered the Central Government to notify the period of paid maternity leave for the purpose of calculating continuous service under Section 2A(2) Explanation (iv) of the Principal Act.
  • The Amendment Bill has amended Section 4(3) of the Principal Act. The maximum amount of gratuity payable to an employee under the Principal Act was ten lakh rupees. The Amended Bill has now empowered the Central Government to notify such amount from time to time. This change has been brought about in consonance with the 7th Central Pay Commission which has raised the maximum gratuity of Central Government employees from rupees ten lakhs to rupees twenty lakhs. Thereby the gratuity of employees in public and private sector under the Principal Act is being revised with due regards to inflation and increase in wages3.

Other Important Provision relevant to The Payment of Gratuity Act, 1972:

It is worth keeping in mind that no gratuity payable under the Principal Act is liable to attachment in execution of any decree or order of any civil, revenue or criminal Court4. Similarly, gratuity funds of workmen and/or employees are safeguarded from being attached when the employer is winding up or in liquidation. In harmony with the above said provision, the Insolvency and Bankruptcy Code, 2016 excludes the gratuity fund of workmen or employees which may be in possession of the corporate debtor from the being a part of liquidation estate5 or the estate of the bankrupt6. Additionally, the Companies Act, 2013 mandates for workmen’s dues inclusive of gratuity of workmen to be paid in priority to all other debts in case of winding up of a company7.

Conclusively, the Amendment Bill passed is a boon for the class of employees covered under the Principal Act.


1. Defined in section 2(e) of the Principal Act as “employee” means any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which this Act applies, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity;

2. Section 4 of the Payment of Gratuity Act, 1972

3. As indicated in Statement of Objects and Reasons of the Payment of Gratuity (Amendment) Bill, 2017

4. Section 13 of the Payment of Gratuity Act, 1972

5. Section 36(4)(iii) of The Insolvency and Bankruptcy Code, 2016

6. Section 155(2)(c) of The Insolvency and Bankruptcy Code, 2016

7. Section 326(1)(a) and 326(2) Explanation (b)(iv) of The Companies Act, 2013

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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