GRATUITY & INCOME COMPUTATION ON THE DEATH OF MD

This query is : Resolved

sohail (Querist)
Follow

25 November 2010 CAN FOUNDER MEMBER OF THE PRIVATE LIMITED COMPANY WHO WAS MANAGING DIRECTOR OF THE COMPANY AT THE TIME DEATH AND HE WAS DRAWING A SALARY OF RS 25000 AND YEAR OF SERVICE IS 50 YEAR MY DOUBT IS
1)WHETHER GRATUITY IS PAYABLE TO HIM OR NOT
2)IF HIS INCOME EXCEEDS BASIC EXEMPTION LIMIT THEN WHO HAS TO FILE THE RETURN
3)TO WHOM WE HAVE TO PAY THE GRATUITY AMOUNT

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
Follow

25 November 2010 1)WHETHER GRATUITY IS PAYABLE TO HIM OR NOT

Yes,

2)IF HIS INCOME EXCEEDS BASIC EXEMPTION LIMIT THEN WHO HAS TO FILE THE RETURN

Legal heir (who of entitled to receive salary )
3)TO WHOM WE HAVE TO PAY THE GRATUITY AMOUNT

the person he has named as 'nominee' in Gratuity scheme

sohail

sohail (Querist)
Follow

28 November 2010 if the managing director has not filled any application in gratuity scheme then what we have to do

Upgrade to CAclubindia Pro. Subscribe Now!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

26 July 2024 If the Managing Director of a company has not filled any application or form in the gratuity scheme, the company needs to ensure compliance with the Payment of Gratuity Act, 1972. Here’s a step-by-step approach to handle such situations:

### **1. Verify the Gratuity Scheme Status**

- **Check Existing Policies:** Ensure that the company has a formal gratuity scheme in place, and understand the terms and conditions of the scheme.

### **2. Review the Payment of Gratuity Act, 1972**

- **Legal Requirement:** According to the Payment of Gratuity Act, 1972, gratuity is a statutory right of employees, including the Managing Director, after completing the prescribed period of continuous service. The scheme should ideally cover all eligible employees, including key managerial personnel.

### **3. Address Non-Compliance**

**If the MD Has Not Filled Any Application:**
- **Determine Eligibility:** Ensure that the Managing Director meets the eligibility criteria for gratuity under the Act. This typically requires a minimum of 5 years of continuous service.
- **Gratuity Payment:** The gratuity amount is calculated based on the formula provided in the Act. The non-submission of an application does not negate the MD’s right to receive gratuity if they are eligible.

### **4. Action Steps**

**1. **Company Policy and Communication:**
- **Inform the MD:** Notify the Managing Director about their entitlement to gratuity and the procedure to claim it.
- **Internal Policy Review:** Ensure that internal policies regarding gratuity claims are clear and communicated to all employees.

**2. **Calculate Gratuity:**
- **Determine Amount:** Calculate the gratuity amount based on the formula:
\[
\text{Gratuity} = \text{Last Drawn Salary} \times 15/26 \times \text{Number of Years of Service}
\]
where:
- **Last Drawn Salary:** Includes basic pay plus dearness allowance.
- **15/26:** This is the formula under the Act for calculating gratuity, where 15 represents the days of salary for each year of service, and 26 represents the number of working days in a month.

**3. **Formulate and Submit Application:**
- **Draft Application:** Prepare a formal application or claim for gratuity payment. This can be done even if the MD has not filled any specific form.
- **Approval Process:** Follow the company’s approval process for disbursing gratuity, which may involve obtaining necessary approvals from relevant authorities within the company.

**4. **Maintain Records:**
- **Documentation:** Keep all documentation related to the gratuity claim and payment process. This includes communication with the MD, calculation of the gratuity amount, and approval for payment.

### **5. Consult Legal or HR Experts**

- **Legal Advice:** It may be beneficial to consult with legal or HR experts to ensure compliance with all legal requirements and to handle any potential issues regarding gratuity claims.

### **6. Considerations for Future**

- **Implement a Procedure:** Establish a clear procedure for gratuity claims and ensure all employees, including top management, are informed about it.
- **Training:** Provide training for HR personnel on handling gratuity claims and compliance with the Payment of Gratuity Act.

### **Summary**

Even if the Managing Director has not filled out any specific application, the company is still obligated to calculate and pay gratuity if the MD is eligible. It’s crucial to follow the legal requirements and ensure that all eligible employees receive their due benefits according to the law.