Section 5 of Payment of Gratuity Act 1972 - Power to Exempt
Section 5 empowered the appropriate Government to exempt an establishment, or an employee or class of employees, from the former Payment of Gratuity Act, 1972 where the gratuity or pensionary benefits available to them were not less favourable than the statutory benefits.
Meaning and purpose of the former Section 5
The object of Section 5 was to permit a statutory exemption where employees already enjoyed gratuity or pensionary benefits that were at least as favourable as those provided by the Payment of Gratuity Act, 1972. The exemption was not automatic. It required a notification by the appropriate Government and could be made subject to conditions stated in that notification.
Text of Section 5 - Power to exempt
5. Power to exempt.
(1) The appropriate Government may, by notification, and subject to such conditions as may be specified in the notification, exempt any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act applies from the operation of the provisions of this Act if, in the opinion of the appropriate Government, the employees in such establishment, factory, mine, oilfield, plantation, port, railway company or shop are in receipt of gratuity or pensionary benefits not less favourable than the benefits conferred under this Act.
(2) The appropriate Government may, by notification and subject to such conditions as may be specified in the notification, exempt any employee or class of employees employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop to which this Act applies from the operation of the provisions of this Act, if, in the opinion of the appropriate Government, such employee or class of employees are in receipt of gratuity or pensionary benefits not less favourable than the benefits conferred under this Act.
(3) A notification issued under sub-section (1) or sub-section (2) may be issued retrospectively a date not earlier than the date of commencement of this Act, but no such notification shall be issued so as to prejudicially affect the interests of any person.
How Section 5 operated
- Government notification was necessary: an employer could not claim exemption merely because it maintained its own gratuity or pension scheme.
- Benefits had to be not less favourable: the appropriate Government had to form an opinion that the relevant gratuity or pensionary benefits were not less favourable than the benefits under the Act.
- Establishment-level exemption: sub-section (1) permitted exemption of an establishment or specified category of establishment covered by the Act.
- Employee-level exemption: sub-section (2) separately permitted exemption of an employee or class of employees.
- Conditions could be imposed: the exemption could operate subject to conditions specified in the notification.
- Retrospective notification was limited: sub-section (3) allowed retrospective operation from a date not earlier than commencement of the Act, but prohibited retrospective exemption that prejudicially affected any person's interests.
Current law - Section 143 of the Code on Social Security 2020
Section 143 - Power to exempt establishment: The Code now contains a wider general exemption provision. The appropriate Government may, by notification and subject to prescribed conditions, grant exemption to an establishment or class of establishments, or employees or a class of employees, from any or all specified provisions of the Code or a scheme framed under it. The provision also permits renewal of an exemption by notification.
Section 143 further provides special consultation requirements for exemptions relating to the provident fund, pension and insurance schemes and for Chapter IV relating to employees' state insurance. Conditions applicable after exemption may also be specified.
Difference between the former Section 5 and current Section 143
The former Section 5 was a gratuity-specific exemption provision based expressly on the test that employees were receiving gratuity or pensionary benefits not less favourable than the benefits conferred by the Payment of Gratuity Act. Section 143 of the Code on Social Security, 2020 is a broader exemption provision applying across the Code, subject to the statutory framework, prescribed conditions and any conditions contained in the exemption notification.
Appropriate Government and exemption notification
Whether the Central Government or a State Government is the appropriate Government depends on the applicable definitions and allocation of responsibility under the governing social security law. An exemption should therefore be verified from the actual Gazette notification and its conditions rather than assumed from an employer's private benefit scheme.
Official legal resources
Ministry of Labour and Employment - Code on Social Security, 2020
Gazette Notification S.O. 5319(E), dated 21 November 2025 - commencement of provisions of the Code
Ministry of Labour and Employment - Payment of Gratuity Act resource page