Gratuity act, 1972

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 July 2015 My company is a private limited company and have employee more then 10, I want to know whether i have to get myself register under GRATUITY ACT, 1972?

If yes what is the procedure and if no know what i should be taking care

and what register i have to maintain

Arpit Shah

Arpit Shah (Expert)
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16 July 2015 http://taxguru.in/income-tax/all-about-payment-of-payment-of-gratuity-act-1972-in-brief-including-the-recent-amendments.html

Querist : Anonymous

Querist : Anonymous (Querist)

16 July 2015 This is nothing about the registration and any procedure

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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26 July 2024 Yes, if your company is a private limited company with more than 10 employees, you are required to comply with the Payment of Gratuity Act, 1972. Here’s a detailed guide on what you need to do:

### **1. Registration Under the Payment of Gratuity Act, 1972**

**Registration Requirement:**
- **Compulsory Registration:** Under the Payment of Gratuity Act, 1972, there is no formal registration requirement like some other labor laws. Instead, the Act mandates compliance with its provisions. The Act applies automatically to establishments with 10 or more employees.

### **2. Compliance with the Act**

**Gratuity Payment:**
- **Eligibility:** Employees who have completed 5 years of continuous service are eligible for gratuity.
- **Calculation:** The formula for calculating gratuity is:
\[
\text{Gratuity} = (\text{Last Drawn Salary} \times 15/26) \times \text{Number of Years of Service}
\]
Here, the "last drawn salary" includes basic pay and dearness allowance (if any).

**Record Keeping:**
- **Service Records:** Maintain accurate records of employee service periods, including start and end dates, to ensure correct calculation of gratuity.
- **Gratuity Register:** Although not mandated to be submitted to a government authority, it’s essential to maintain a **Gratuity Register** in your records. This register should include details such as:
- Employee Name
- Employee ID
- Date of Joining
- Date of Leaving
- Total Length of Service
- Gratuity Amount Payable
- Date of Payment

**Gratuity Fund:**
- **Establishment of Fund:** While the Act does not require creating a specific fund, it is advisable to maintain a separate gratuity fund or provision to ensure sufficient liquidity to meet gratuity liabilities.

### **3. Legal and Administrative Considerations**

**Comply with Payment Deadlines:**
- **Payment Deadline:** Gratuity should be paid within 30 days from the date it becomes payable. If there is a delay, interest at the rate of 10% per annum is payable.

**Documentation and Communication:**
- **Employee Communication:** Inform employees about their gratuity benefits and maintain transparency regarding the calculation and payment of gratuity.

**Tax Considerations:**
- **Tax Exemption:** Gratuity received by employees is exempt up to Rs. 10 lakhs under Section 10(10) of the Income Tax Act, 1961. Ensure to communicate this to employees for their tax planning.

### **4. In Case of Non-Compliance**

- **Penalties:** Non-compliance with the Payment of Gratuity Act, 1972 can lead to penalties and legal issues. Ensure you comply with all provisions to avoid any legal repercussions.

### **Summary of Actions:**

1. **Ensure Compliance:** Comply with the provisions of the Payment of Gratuity Act, 1972 for employees with 10 or more employees.
2. **Maintain Records:** Keep detailed records and a gratuity register.
3. **Payment of Gratuity:** Make timely gratuity payments to eligible employees.
4. **Create Provisions:** Consider creating a gratuity fund to manage future liabilities.

By following these guidelines, you can ensure that your company complies with the Payment of Gratuity Act, 1972 and meets all its legal obligations.