Step-by-Step Guide 6 Steps

How to Register for Gratuity Under Payment of Gratuity Act

Step-by-step guide to employer registration under the Payment of Gratuity Act, 1972. Covers Form A filing, eligibility, calculation formula, employee rights, and compliance.

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Dhanush Prabha
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How to Register for Gratuity Under Payment of Gratuity Act
Reviewed by Industry Experts & Startup Specialists.
Last Updated: 
Quick Overview
Estimated Cost₹0
Time Required15 to 30 Days
Total Steps6 Steps
What You'll Need

Documents Required

  • Establishment registration certificate (company COI, shop license, or factory license)
  • Complete employee register showing 10+ employees with joining dates
  • PAN of the establishment and employer
  • Registered office address proof
  • Details of controlling authority jurisdiction (Assistant Labour Commissioner office)
  • Employee details: names, designations, dates of joining, and salary details

Tools & Prerequisites

  • Access to the state labour department portal for online Form A filing (where available)
  • HR consultant or labour law advisor for compliance setup and gratuity policy drafting
  • Payroll software for gratuity liability calculation and provisioning
  • Insurance provider or gratuity fund manager for gratuity funding arrangements

Employer registration under the Payment of Gratuity Act, 1972 becomes mandatory when an establishment has 10 or more employees on any day in the preceding 12 months. The employer must file Form A (Notice of Opening) with the Controlling Authority within 30 days. Gratuity is payable to employees after 5 years of continuous service at the rate of 15 days' wages per completed year, with a maximum of Rs 25 lakh. This guide covers the registration process, gratuity calculation, funding options, employee nomination, and ongoing compliance requirements.

  • 10 employees trigger: Act applies when 10+ employees on any day in preceding 12 months
  • Form A: file with Controlling Authority within 30 days of applicability
  • Gratuity formula: (Last salary x 15 x Years of service) / 26
  • Maximum: Rs 25 lakh (revised in 2024)
  • 5-year minimum: required for resignation/retirement (waived for death/disablement)

What is the Payment of Gratuity Act?

The Payment of Gratuity Act, 1972 is a social security legislation that provides for payment of gratuity to employees as a terminal benefit upon completion of 5 years of continuous service. Gratuity is a statutory right of the employee -- it is not a bonus or a discretionary payment. The Act applies to every factory, mine, oilfield, plantation, port, railway, shop, and establishment employing 10 or more persons on any day in the preceding 12 months. Once the Act becomes applicable to an establishment, it continues to apply even if the number of employees falls below 10.

Governed by the Payment of Gratuity Act, 1972 (Central Act 39 of 1972) and the Payment of Gratuity (Central) Rules, 1972. Administered by the Ministry of Labour and Employment. The Controlling Authority (Assistant Labour Commissioner) manages registrations and dispute resolution. Maximum gratuity: Rs 25 lakh (Notification dated 2024). The Ministry of Labour portal provides the Act text and forms.

Gratuity Calculation

ComponentFormula ElementNotes
Last Drawn SalaryBasic + DAExcludes HRA, bonus, overtime
Service YearsCompleted years (6+ months = 1 year)Minimum 5 years for resignation
Formula(Salary x 15 x Years) / 2626 = working days in a month
MaximumRs 25 lakhRevised periodically

Employee with 12 years of service, last drawn basic + DA of Rs 60,000. Gratuity = (60,000 x 15 x 12) / 26 = Rs 4,15,384. This is within the Rs 25 lakh maximum, so the full amount is payable. The employer must pay within 30 days of the employee's last working day. Delay attracts 10% annual interest from the due date.

Step-by-Step Registration Process

Step 1: Verify Applicability

Count all employees (permanent, temporary, contractual, probationary) on each day for the past 12 months. If the count reaches 10 or more on any single day, the Act applies. Once applicable, it applies permanently regardless of future employee count. Calculate the date the Act became applicable -- Form A must be filed within 30 days of this date. For new establishments, count from the date you first hire 10 employees.

Step 2: File Form A

Prepare and file Form A (Notice of Opening) with the jurisdictional Controlling Authority (Assistant Labour Commissioner). Form A contains: establishment name and registered address, nature of business, date the Act became applicable, number of employees on the applicability date, name and address of the employer, and name of the person responsible for compliance. Some states (Maharashtra, Karnataka, Delhi) allow online filing through state labour portals. Others require physical submission.

Form A must be filed within 30 days of the Act becoming applicable. Late filing is an offense under the Act and may attract penalties from the Controlling Authority. Many employers miss this deadline because they are unaware of the 10-employee trigger. HR teams should track employee counts monthly and initiate Form A filing as soon as the count reaches 10. The cost of registration is nil -- there is no government fee for Form A filing.

Step 3: Set Up Gratuity Funding

Choose a funding mechanism for future gratuity liabilities. Group gratuity insurance from LIC or private insurers is the most popular option -- the employer pays annual premiums, and the insurer pays the gratuity when it falls due. Premiums are tax-deductible under Section 36(1)(v) of the Income Tax Act. Alternative: establish an approved gratuity fund trust with annual employer contributions. The chosen method must ensure sufficient funds are available when gratuity claims arise.

Step 4: Implement Employee Nominations

Distribute Form F (nomination form) to all employees who have completed 1 year of service. Employees nominate family members or other persons to receive gratuity in case of death. Collect completed Form F within 30 days. Maintain a nomination register. For new employees, provide Form F after they complete 1 year. Remind employees to update nominations after life events (marriage, childbirth, divorce).

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Gratuity Funding Options

MethodHow It WorksTax BenefitBest For
Group Gratuity Insurance (LIC/Private)Annual premiums; insurer pays gratuitySection 36(1)(v) deductionMost companies
Approved Gratuity Fund TrustEmployer creates trust; makes contributionsSection 36(1)(v) deductionLarge companies
Book Provision (Unfunded)Provision in balance sheet; pay from cash flowNot tax-deductibleSmall companies (temporary)

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Summary

Gratuity registration under the Payment of Gratuity Act, 1972 is mandatory for establishments with 10 or more employees. File Form A within 30 days of reaching the threshold. Gratuity is calculated as (last salary x 15 x years of service) / 26, with a maximum of Rs 25 lakh. Fund the liability through group gratuity insurance (LIC is most common) or an approved trust. Implement the employee nomination process (Form F) and maintain all required registers. Pay gratuity within 30 days of it becoming due -- late payment attracts 10% annual interest. Non-compliance can result in imprisonment up to 2 years and fines up to Rs 1 lakh.

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Frequently Asked Questions

What is the Payment of Gratuity Act, 1972?
The Payment of Gratuity Act, 1972 provides for payment of gratuity (a retirement/terminal benefit) to employees in establishments with 10 or more employees. Gratuity is payable after 5 years of continuous service upon resignation, retirement, death, or disablement. The amount is calculated as 15 days' wages for every completed year of service. Maximum limit: Rs 25 lakh (increased from Rs 20 lakh in 2024). The Act applies to factories, mines, shops, and all commercial establishments.
When does gratuity registration become mandatory?
Registration (Form A filing) becomes mandatory when an establishment employs 10 or more employees on any day in the preceding 12 months. The employer must file Form A within 30 days of the Act becoming applicable. Once applicable, the Act continues to apply even if employee count drops below 10. The 10-employee threshold includes all employees -- permanent, temporary, contractual, and probationary. Failing to register is an offense under Section 9 of the Act.
How is gratuity calculated?
Formula: Gratuity = (Last drawn salary x 15 x Years of service) / 26. 'Last drawn salary' means basic salary + dearness allowance (DA). 'Years of service' means completed years (6+ months rounds up to next year). Example: employee with 10 years service and last salary of Rs 50,000. Gratuity = (50,000 x 15 x 10) / 26 = Rs 2,88,461. Maximum payable: Rs 25 lakh. For piece-rated employees, the formula uses average of last 3 months' wages.
What is Form A for gratuity registration?
Form A is the 'Notice of Opening' filed with the Controlling Authority (Assistant Labour Commissioner or designated officer). It contains: establishment name and address, nature of business or industry, date when the Act became applicable, number of employees, name and address of the employer, and details of the person responsible for management. File within 30 days of reaching 10 employees. Some states accept Form A online; others require physical filing.
Who is the Controlling Authority?
The Controlling Authority is an officer appointed by the appropriate government to administer the Payment of Gratuity Act in a specific jurisdiction. Typically the Assistant Labour Commissioner (ALC) or Deputy Labour Commissioner of the area where the establishment is located. The Controlling Authority: receives Form A registrations, adjudicates gratuity disputes, inspects establishments for compliance, and orders gratuity payment in cases of employer default.
Is gratuity payable if an employee resigns before 5 years?
Generally, no. Gratuity requires minimum 5 years of continuous service for resignation and retirement cases. However, there are two exceptions where the 5-year minimum does not apply: death of the employee (gratuity payable to nominee regardless of service length) and disablement (permanent or partial disability). Some companies have voluntary gratuity policies that pay gratuity before 5 years, but this is not legally required under the Act.
What is the maximum gratuity limit?
The maximum gratuity payable under the Act is Rs 25 lakh (effective from 2024, increased from Rs 20 lakh). This cap applies to all establishments covered under the Act. Employers can voluntarily pay gratuity above Rs 25 lakh, but the excess amount is taxable in the employee's hands. For government employees, the limit is Rs 25 lakh (same as private sector after the 2024 notification). The limit is periodically revised by the Central Government.
How to fund gratuity liability?
Options: Group Gratuity Insurance (most popular -- purchase from LIC or private insurers; premiums are tax-deductible under Section 36(1)(v)), Approved Gratuity Fund Trust (create a trust, make annual contributions; contributions are tax-deductible under Section 36(1)(v)), or book provision (provision in balance sheet without separate funding -- not tax-deductible). Companies must value gratuity liability actuarially under AS-15 or Ind AS 19 and disclose it in financial statements.
What is Form F for gratuity nomination?
Form F is the nomination form filled by employees specifying who should receive gratuity in case of the employee's death during service. Every employee must file Form F within 30 days of completing 1 year of service. The nomination can be in favor of family members (spouse, children, parents). Single employees can nominate any person. Nominations can be modified at any time by filing a fresh Form F. The employer maintains a nomination register.
What are the penalties for non-compliance?
Penalties under the Act: Section 9 -- employer failing to pay gratuity: imprisonment up to 2 years and/or fine up to Rs 1 lakh. Section 9(2) -- making false statements to avoid payment: imprisonment up to 6 months and/or fine up to Rs 10,000. Non-filing of Form A: penalty imposed by Controlling Authority. Late payment: interest at 10% per annum from the date gratuity became payable. Repeated offenses attract enhanced penalties.
Does gratuity apply to contract employees?
Yes, contract employees are covered under the Payment of Gratuity Act if they have worked for 5 years of continuous service in the same establishment. The Supreme Court has held that the principal employer (not the contractor) is responsible for gratuity payment to contract workers who have completed 5 years. This applies even if the contract was renewed multiple times. The key factor is continuity of service in the establishment, not the contract terms.
What records must an employer maintain?
Mandatory records: Form A (notice of opening, filed with Controlling Authority), Register of employees covered under the Act (Form N), nomination register (Form F for each employee), gratuity payment records (Form L filed when gratuity is paid), employee service records (joining dates, salary history), actuarial valuation reports (for accounting), and insurance policy details or trust fund records. Display the abstract of the Act at the workplace.
Can an employer forfeit gratuity?
Gratuity can be forfeited (partially or wholly) only under Section 4(6): if the employee's services were terminated for riotous or violent behavior, or if the employee is terminated for an offense involving moral turpitude committed during employment (must be convicted by a court). Gratuity cannot be forfeited for: poor performance, unauthorized absence, breach of employment agreement, or damage to company property. The forfeiture provisions are very narrow.
Is gratuity taxable for employees?
Gratuity tax treatment: for government employees -- fully exempt from income tax. For private sector employees covered by the Act -- exempt up to the lower of: actual gratuity received, Rs 25 lakh, or 15 days' salary for each completed year of service. Any amount exceeding the exemption is taxable as salary income. For employees not covered by the Act: exemption is calculated differently (half month's salary for each completed year). TDS is not deducted on exempt gratuity.
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Guide by Dhanush Prabha

Dhanush Prabha is the Chief Technology Officer and Chief Marketing Officer at IncorpX, leading platform development, digital growth, and product strategy. With experience in full-stack development, scalable systems, SEO, and marketing automation, he focuses on building technology-driven solutions and educational business resources for startups and growing businesses. He writes on technology, entrepreneurship, business setup processes, and digital transformation.