What is the Gratuities Clause (GC)?

The Gratuities Clause is a provision that restricts the General Assembly’s power to grant donations, gratuities, or extra compensation to public officers, agents, or contractors after services have been rendered or contracts entered into.

How is gratuity calculated?

Gratuity is typically calculated at 15 days’ wages for each year of completed service, with a maximum limit (e.g., INR 2,000,000 in India)

What is the minimum service period for gratuity eligibility?

Employees must serve a minimum period (usually five years) to be eligible for gratuity

Can an employer arbitrarily forfeit gratuity?

No, employers cannot arbitrarily forfeit gratuity. Legal proceedings and substantial proof are required, and failure to pay gratuity dues can lead to imprisonment

What exceptions exist for gratuity forfeiture?

Exceptions include compensation for innocent crime victims, health insurance plans for retirees, and disability benefits for public safety employees

What is the Gratuities Clause (GC)?

The Gratuities Clause is a provision that restricts the General Assembly’s power to grant donations, gratuities, or extra compensation to public officers, agents, or contractors after services have been rendered or contracts entered into.

How is gratuity calculated?

Gratuity is typically calculated at 15 days’ wages for each year of completed service, with a maximum limit (e.g., INR 2,000,000 in India)

What is the minimum service period for gratuity eligibility?

Employees must serve a minimum period (usually five years) to be eligible for gratuity

Can an employer arbitrarily forfeit gratuity?

No, employers cannot arbitrarily forfeit gratuity. Legal proceedings and substantial proof are required, and failure to pay gratuity dues can lead to imprisonment

What exceptions exist for gratuity forfeiture?

Exceptions include compensation for innocent crime victims, health insurance plans for retirees, and disability benefits for public safety employees

What is the Gratuities Clause (GC)?

The Gratuities Clause is a provision that restricts the General Assembly’s power to grant donations, gratuities, or extra compensation to public officers, agents, or contractors after services have been rendered or contracts entered into.

What is the minimum service period for gratuity eligibility?

Employees must serve a minimum period (usually five years) to be eligible for gratuity

Can an employer arbitrarily forfeit gratuity?

No, employers cannot arbitrarily forfeit gratuity. Legal proceedings and substantial proof are required, and failure to pay gratuity dues can lead to imprisonment

What exceptions exist for gratuity forfeiture?

Exceptions include compensation for innocent crime victims, health insurance plans for retirees, and disability benefits for public safety employees

What are the conditions for forfeiture of gratuity?

Gratuity can be forfeited if an employee is terminated for riotous or disorderly conduct, violence, or for an offence involving moral turpitude committed during employment.

What is the Supreme Court decision on gratuity?

The Supreme Court of India has held that gratuity is a statutory right, not a charity, and cannot be denied except under conditions specified in the Act.

Can an employer hold the gratuity amount?

No. An employer cannot withhold gratuity even if disciplinary proceedings are pending, unless forfeiture conditions under the Act are met.

What is the rule 7 of gratuity?

Rule 7 deals with the procedure for payment of gratuity, stating that the employer must determine and pay gratuity within 30 days of it becoming payable.

How gratuity is calculated if terminated?

If termination is not due to misconduct, gratuity is calculated as: (Last drawn basic + DA × 15 × years of service) ÷ 26.

What are the new rules for gratuity in 2025?

There are no new amendments specific to 2025. The Payment of Gratuity Act, 1972 continues to apply with the last major update being the ₹20 lakh ceiling.

What is the new rule for gratuity eligibility?

Eligibility remains unchanged: gratuity is payable after 5 years of continuous service, except in cases of death or disability.

Can a company refuse to pay gratuity?

A company can refuse only if the employee is legally disqualified due to forfeiture conditions; otherwise, refusal is illegal.

Is it mandatory to keep basic 50% of CTC?

No, it is not mandatory by law, but courts have held that basic pay should not be artificially reduced to avoid statutory benefits.

Is criminal conviction by a court is necessary for forfeiture of gratuity?

Yes, for forfeiture on grounds of moral turpitude, a criminal conviction by a court is required.

Can we withdraw gratuity after 10 years?

Yes. Gratuity can be claimed anytime after it becomes payable; there is no expiry, though delays may need justification.

What is the latest amendment of the Gratuity Act?

The latest major amendment increased the maximum gratuity limit to ₹20 lakh and aligned it with Central Government employees.

What is the latest amendment of the Gratuity Act?

The latest major amendment increased the maximum gratuity limit to ₹20 lakh and aligned it with Central Government employees.

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What Is Gratuity Forfeiture? Legal Boundaries And Employee Rights

Pragya Pathak

Author

Updated: 03-01-2026 at 3:30 PM

Gratuity is a significant financial benefit given to employees as a token of appreciation for their long-term service, but it is more than just a benefit; it is a right of all employees working in a company or an organisation. The government of India has created a special law for this, named the Payment of Gratuity Act, 1972, which safeguards this basic right of employees working in the country. However, questions often arise about whether gratuity can be withheld or forfeited if an employee has committed an offence, faced disciplinary actions, or has not vacated employer-provided housing.

According to Indian law, specifically the Forfeiture of Gratuity Section 4(6), the conditions under which gratuity can be forfeited are very strict and clearly mentioned, along with a clear difference between the permissible forfeiture and denial.

Read the article to learn in detail about the Payment of Gratuity Act, forfeiture of gratuity meaning, legal boundaries, employee rights, and key gratuity forfeiture cases in India that clarify this issue.

Overview

The table below summarises some key information about the Gratuity Act that one should know.

Name of the act	Payment of Gratuity Act, 1972
Why was it created?	To govern how employers pay gratuities to their workers in India
Basic rule	Gratuity is a right that every employee deserves
What does the forfeiture of gratuity meaning?	Withholding an employee’s gratuity at the time of payment
Legal ground for forfeiture of gratuity	Willful damage to the employer’s property, disorderly conduct, acts of moral turpitude, etc.
How to calculate gratuity?	Gratuity calculator

Legal Framework For Gratuity Forfeiture

The Payment of Gratuity Act, 1972, governs how employers pay gratuities to their workers in India. However, the forfeiture of gratuity is based on the Forfeiture of Gratuity Section 4(6), which indicates clearly under which terms a gratuity can be lost by an individual employee.

Willful omission or negligence leading to loss suffered by the employer’s property.
Riotous behaviour, disorderly conduct, or any other violent acts demonstrated by an employee.
Any form of moral turpitude in Gratuity Act committed during employment.

However, this banishment only applies when an employee has been dismissed from service on those grounds. It should be noted that even if the worker is involved in some disciplinary actions or criminal proceedings, then he/she cannot be denied his/her entitlements unless sec. 4(6) conditions are met.

Judicial Precedents On Gratuity Forfeiture

Several rulings of Supreme Court judgement on forfeiture of gratuity have established that gratuity can only be withheld in cases of proven and serious misconduct. This ensures that employers cannot easily deny this benefit without substantial legal grounds.

For instance, it was held by the court in Texmaco Limited v Shri Ram Dhan (1993), that withholding the gratuity amount from an employee retiring from service without proven misconduct constitutes unfair labour practice. This highlights the need for concrete evidence before denying gratuity benefits.

One of the gratuity forfeiture cases in India is of Brundaban Sahu v. a.s. R.T. Corporation Ltd. (1993), wherein the court held that compulsorily retired employees are still entitled to their gratuity unless there is specific misconduct. The court reinforced that ongoing disciplinary proceedings do not automatically lead to forfeiture of gratuity.

In Gopalkrishna v. Karnataka Soaps & Detergents Ltd. (1996), it was emphasised that even where disciplinary proceedings have been initiated against an employee, his/her employer cannot deny him/her gratuity. The judiciary consistently protects the right to gratuity unless dismissal is based on reasons outlined in the Act.

The point from these Supreme Court judgement on withholding of gratuity and pension is that unless fired under reasons expressly stated in the Payment of Gratuity Act, an employee remains eligible to receive gratuity.

Impact Of Criminal Proceedings And Non-Vacation Of Quarters

Doubt exists as to whether or not an employee could be denied his/her long-service benefits due to involvement in criminal cases or failure to vacate company premises occupied by him/her. Court decisions have elaborated on this aspect, too.

Nonetheless, in Travancore Plywood Ind. Ltd. v. Regional Joint Labour Commissioner (1996), it was decided by the court that non-receipt of the employer's land cannot be used as grounds for retaining the gratuity.

Also, Lt.Col. A.V. Tiwari (Retd.) v The Secretary Ministry of Welfare, Government of India (1996) declared that even if employees refuse to leave accommodation provided by employers, they should be given their retrenchment benefits, including gratuities.

Further on in Rajendra Kumar Nangia v Rashtriya Chemicals & Fertilizers Ltd.(2002), it was also said that the mere pendency of a criminal case will not preclude an employee from receiving his/her dues under the govt scheme. This protection ensures that ongoing legal proceedings do not impede employees from enjoying their normal accretions as a result of the unfair denial of such benefits.

Conditions For Gratuity Forfeiture

The Act and various judgments provide for the fact that only under certain conditions may a worker’s right to receive gratuity be forfeited by the employers. These are

Misconduct, as defined under section 4(6), leads to the dismissal of an employee.
Willful omission, negligence, or riotous conduct demonstrated by the employer.
Before any confiscation is done, the employee is given fair notice and an opportunity to be heard in his or her defence.

The courts in India have taken a similar view. In Hindustan Antibiotics Ltd. v. Pramodini Rohidas Sutar (2009), it was held that a forfeiture of gratuity on grounds of moral turpitude should only be valid if the employee has been convicted of the offence.

Also, in Vijaya Bank v. Sri Mohan Das Ramana Shetty (2009), emphasis was laid that gratuity could not be forfeited unless the respondent had been afforded a hearing.

Employee Rights And Employer Obligations

There is a statutory requirement that employees must receive gratuity after working for no less than five years. The employer is required by law to pay this amount except under certain specified circumstances where there can be a forfeiture of it. Any retention or reduction regarding gratuity payment without following due process provisions amounts to unfairness, which can always be contested before the court.

Employees, whose gratuities have been unduly held back, can seek redress from courts of law. On many occasions, the courts have said that gratuity cannot be withheld arbitrarily as it is considered one of the retirement benefits.

Conclusion

The forfeiture of gratuity is purely governed by the Forfeiture of Gratuity under Payment of Gratuity Act, 1972, with clear-cut reasons for non-payment and the payment of gratuity comes under the Payment of Gratuity Act, 1972. This law is a reminder to all employers working in India to strictly adhere to legal requirements before withholding or forfeiting an employee’s beneficial retirement entitlements. And for employees, this law is a protective shield that guards one of their basic rights and helps them in challenging the unlawful withholding of gratuities.

Both employers and employees should know these laws so that employers can strictly adhere to them and the employees can ensure that their rights are not violated or infringed upon. At the end, gratuity is a recognition provided to all the employees by their employers as a token of their long service, and therefore, this symbol must be protected when tarnished.

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