Gratuity

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

12 March 2010 One of my friends advised to form Employees Gratuity Trust to get Tax Exemption on payment, but I did not understand. Please friends clarify my doubts.

1. For What purpose we have to open an Employees Gratuity Trust? Only Tax purpose or any other benefits?
2. Without formation of Trust can we get tax exemption on Gratuity Expansion to LIC Department? IT Department can allow like this transaction?
3. What is role of Trust? How it is work between company, employee and LIC Department?
4. Can we pay Gratuity amount to direct LIC Department instead of Trust?
5. How much balance we should maintain in Trust Account and LIC? Can we park more then our liability at Trust?
a. Means actual Gratuity is Rs.5, 00,000/- can we park Rs. 10, 00,000/- in Trust?
b. After some time if we required fund then can we withdraw from Trust account (which is kept more than Liability) for Company uses? IT department allow for that transactions?
6. If company closed before 5 years, so, no one employee complete 5 years as per act. Then what about Gratuity Fund? Can company get back that amount from LIC or Trust or we have to pay to employees? Then what about Trust existence?
7. If company exist more then 10 years but no one employee work more then 4 years, then fund will have more then required, then that time also we have to pay Current year Gratuity liabilities.
8. Trust can invest amount in likes FD’s and Mutual Funds to raise income? Instead of putting more amount in LIC? For those earnings we have to pay any taxes?

CA Gangadhar Mishra

CA Gangadhar Mishra (Expert)
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12 March 2010 pl.brief your query.

Maninder Jain

Maninder Jain (Expert)
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13 March 2010 Dear Anonymous
(2 & 4) As per Income tax act, you get deduction of gratuity on actual payment basis. So even if you do not open a trust but take a lic group gratuity scheme you are elegible for deduction.

(5) You cannot use trust to park your money.

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