Payment of Bonus Act, 1965 and Payment of Gratuity Act, 1972

The payment of Bonus Act was made applicable from 25th September, 1965. It has 40 sections. It is applicable on every factory and every other establishment that employs 20 or more employees on any day during an accounting year.

Some of the important definitions are:

Accounting year is the year ending on the days on which the books and accounts of the corporation are to be closed or balanced in relation to a corporation.

Agricultural income is the income having the same meaning as per the Income Tax Act.

Available Surplus means surplus computed under section 5.


The payment of Bonus Act, 1965 aims at providing a part of profits towards the payment of bonus to the employees of certain establishments.

Scope and major provisions:

Under The payment of Bonus Act, 1965 all the employees receiving salary or wages up to Rs. 10000 per month and engaged in any kind of work whether skilled, unskilled, manual, etc. are covered under the Act if that particular employee has employee has worked for atleast 30 days in that particular accounting year.

The Minimum bonus payable is 8.33% of the salary or wages of the employee during the accounting year. This payable even if the employer suffers a loss. The maximum bonus payable under the act is 20% of the basic salary and wages.

The bonus is paid within 8 months of the closure of the accounting year and is paid on an annual basis, the mode of payment of the bonus in cash.

If any employer contravenes any of the provisions of this act, the penalty that may be imposed is up to Rs. 1000 or imprisonment for 6 months or both.

Payment of Gratuity Act, 1972:

The Payment of Gratuity Act, 1972 was enacted on 21st August, 1972. It is divided into 15 sections. The main objective of Gratuity Act, 1972 is to reward the employee’s past services, when the services are terminated or the employee is retired.


Gratuity is a voluntary payment made by the employer to the employee for sincere and continuous services rendered by him or her. The act provides for an obligation for the payment of Gratuity to the employees covered under this act.

Scope and major provisions:

Under this act, complete years of service means continuous service of five years.

 The Gratuity Act is applicable on the following:

•Employees engaged in factories, mines, oilfields, plantations, ports, railways, companies or other establishments and for matters connected therewith or incidental with.

•Every shop and establishment falling within the meaning of law, in which 10 or more persons are employed or were employed, on any day of the preceding 12 months as specified in the government notification.

•Such establishments where 10 or more persons are employed or were employed, on any day of the preceding 12 months as specified in the government notification.

Entitlement of Gratuity:  Gratuity is payable to employees who have employed a continuous service of five years or more. It is payable on termination, superannuation or at the time or resignation.

Forfeiture of Gratuity: Gratuity can be forfeited in the following circumstances:

•Any act, willful omission or negligence, causing damage to the employer’s property or loss to the employer.

•Act of riotous conduct or any act of violence on the part of the employee.

•Any act that constitutes an offence of moral turpitude.

•If the employee leaves the employment before the completion of the continuous service period of 5 years.

Maximum limit and amount of Gratuity payable: The maximum Gratuity payable to the employee is Rs.10 Lakhs, which is exempted as per the Income Tax Act. The Gratuity amount is determined in the following manner:

•The employer shall pay Gratuity rate of 15 days wages for every completed year of service based on the rate of last drawn wages by the employee concerned.

•The formula for calculation is as follows:

(Basic salary + DA) * Number of years of continuous service

If the employee has worked for more than 6 months, one complete year is to be counted. If the employee has worked for less than 6 months, that period is ignored.

 Thus, the main provisions of the Gratuity Act are as follows:

•The minimum amount of the Gratuity paid under the Gratuity Act is 3.5 Lakhs.

•For getting the Gratuity amount, an employee must have worked for atleast 5 years within an organisation.

 •The maximum Gratuity amount cannot exceed beyond 10 Lakhs.

•Employer can deduct Gratuity for negligence in services.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

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We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.

We are also running a series Inspirational Women from January 2021 to March 31,2021, featuring around 1000 stories about Indian Women, who changed the world. #choosetochallenge

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