Section 4 of Payment of Gratuity Act, 1972 - Payment of Gratuity

4. (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years -

(a) on his superannuation, or

(b) on his retirement or resignation, or

(c) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement.

Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominee or heir is a minor, the share of such minor shall be deposited with the controlling authority for investment for the benefit of the minor until majority, in the prescribed manner.

Explanation: Disablement means such disablement as incapacitates an employee for the work which the employee was capable of performing before the accident or disease resulting in such disablement.

(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned.

For a piece-rated employee, daily wages are computed on the average of the total wages received during the three months immediately preceding termination, excluding overtime wages. For an employee in a seasonal establishment who is not employed throughout the year, gratuity is payable at the rate of seven days' wages for each season.

Explanation: For a monthly-rated employee, fifteen days' wages are calculated by dividing the monthly rate of wages last drawn by twenty-six and multiplying the quotient by fifteen.

(3) Before commencement of the Code on Social Security, 2020, the statutory ceiling under the Act stood at Rs. 20,00,000, pursuant to the applicable Central Government notification.

(4) For computing gratuity of an employee employed after disablement on reduced wages, wages for the period preceding disablement are taken at the wages received during that period and wages for the subsequent period at the reduced rate.

(5) Nothing in Section 4 affects an employee's right to receive better terms of gratuity under any award, agreement or contract with the employer.

(6) Notwithstanding sub-section (1), gratuity may be forfeited to the extent of damage or loss where services are terminated for an act, wilful omission or negligence causing damage, loss or destruction of the employer's property. Gratuity may be wholly or partially forfeited where services are terminated for riotous or disorderly conduct or an act of violence, or for an act constituting an offence involving moral turpitude committed in the course of employment.