Darshan Bhutwala (Proprietor) (81 Points)
16 June 2012Hi Everyone,
One Company has subscribed to Group Gratuity with LIC of India since last couple of years. Now the Company wants to start its own Gratuity Fund. My querry is:
1. Whether this is permitted under Income Tax Act?
2. Process in Income Tax for this Migration
3.Tax Implications if any, on the Company
4. Any other factors that need to be considered
Thanks & Regards
V K Bajaj
(Accountant)
(1540 Points)
Replied 19 June 2012
1. Yes
2. From the year you get approval from Income Tax Deptt you will contribute the amount into thus created trust. Complete Migration is with cooperation with LIC. The gratuity amount shall be certified by a Professional = who will work on the basis of present basic salary, date of joining, date of birth or date of returement etc. etc.
3. No Tax implication: However, you have to pay the gratuity amount every year to the Gratuity Trust. However, if Company does not pay then this expenditure will not be allowed.
4. Proper separate, bank account, books of accounts (on receipt and payment basis) shall be maintained. Will be audited by a CA. Separate Return of Income Tax shall be filed. Minute Books and record of Meeting of Trustees shall be recorded. Outgoing employees will get their legitimate gratuity from this Gratuity Trust. Valuation of Gratuity amount as narrated in point 2 above.
contact @ vkbajaj.co.in
vkbajaj1950 @ yahoo.co.in
Dada
(Consultant)
(29 Points)
Replied 05 July 2012
Sir,
As per Rule 110 of Income Tax Rules- "No alteration in the rules, constitution, objects or conditions of an approved fund shall be made without the prior approval of the Chief Commissioner or Commissioner."
Does resignation of a trustee and appointment of a new trustee amounts to alteration of constitution? Please clarify
Thanks,
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 25 December 2017
Benefits of Creating Group Gratuity Trust Fund
For more details on the above subject visit - https://groupgratuityfundconsultantindelhi.blogspot.in/2017/12/benefits-of-creating-group-gratuity.H T M L
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 26 December 2017
Benefit of Creating Group Gratuity Trust Fund with Insurance Company & Impact on Gratuity Liability due to change in the Ceiling limit of Gratuity Amount Payable to employees from "Ten Lakh Rupees" to "Twenty Lakh Rupees" for Companies
For more details visit - https://groupgratuityfundconsultantindelhi.blogspot.in
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 28 December 2018
Why Gratuity Trust Fund Approval is required ?
The Payment of Gratuity (Amendment) Act 2018 provides a Financial Security to Employees working in all organizations such as factory, mine, oilfield, port, railways, plantation, shops, establishments or educational institution (i.e. Private Schools, Colleges, etc. etc.) having 10 or more employees on any day in the preceding 12. Gratuity is payable to an employee on exit from service after he has rendered continuous service for not less than five years:
(a) On his superannuation
(b) On his resignation
(c) On his death or disablement due to employment injury or disease.
In case of (c) vesting condition of 5 years does not apply.
The amount of Gratuity payable to an employee on his exit from service, according to “ Payment of Gratuity Act 1972”, in force at present, is :-
(Salary of the employee at the time of exit) x (15/26) x (Number of Years of Service at the time of exit)
This is subject to a ceiling limit of 20,00,000/-.
For Accounting of Retirement Benefits, Private Schools/Private Companies make provisions of Retirement Benefits by taking Actuarial Valuations Reports/Certificates from Actuary.
Gratuity Trust Fund Setup to get deduction under section 36 (V) of the Income Tax Act, 1961 for contributions made in Gratuity Trust Fund with Life Insurance Corporation of India - LIC or Other Insurance Agency (i.e SBI Insurance, Bharati Axa Life Insurance etc. etc.).
To get the benefits of Section 10 (25) (iv) of the Income Tax Act, 1961 (i.e. any income received by the Trustees on behalf of an approved Gratuity Fund). It is mandatory for Private School/Private Companies to Get Approval of Gratuity Trust Fund
Tikaram Chaudhary
Gratuity Trust Fund Consultant
Mobile Number - 9211637063
Email ID - gratuityconsultant @ gmail.com
Blog : https://gratuityconsultant.blogspot.com
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 23 February 2019
Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit from the company. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
Gratuity is a statutory right of employee whoever completes 5 years in the same organization and is a terminal. It means, Gratuity amount is determined only on the monthly terminal wages of the employee on his exit from the Company after the completion of 5 years of Service. The cost is to be borne by the Company and not by an employee. hence, unlike other fringe benefits (i.e. Medical Insurance, Term Insurance & Accidental Insurance) it can not be part of CTC.
To understand this, let us take an Example,
Mr. A Joins the Organization with a Basic Pay of Rs. 26,000/- per month and monthly CTC of 50,000/-. Assuming that expected increase in basic salary is assumed to be 10% p.a.
Now Gratuity Payments for next 5 years will be :-
On Completion of 1 Yr - (15/26)* 28,600*1 = 16,500/-
On Completion of 2 Yrs - (15/26)*31,460*2 = 36,300/-
On Completion of 3 Yrs - (15/26)*34,606*3 = 59,895/-
On Completion of 4 Yrs - (15/26)*38,067*4 = 87,847/-
On Completion of 5 Yrs - (15/26)*41,873*5 = 1,20,788/-
Now for making the payment of gratuity, Company has 2 options :
(i) Pay as you go option - Where company makes a provision of Gratuity in the Balance Sheet on the accrual basis taking an actuarial report on BS date from an Actuary and as and when Mr. A leaves the organization, company pay gratuity from their resources and get the tax benefit for the gratuity paid.
Expected Tax Benefit calculation in case of "Pay as you Go Option" :-
For Provision of 1st Yr - NIL
For Provision of 2nd Yr - NIL
For Provision of 3rd Yr - NIL
For Provision of 4th Yr - NIL
For Payment on 5th Yr - 1,20,788/-
In this case company, Mr. A will leave the company then company will get the tax benefit of Rs. 1,20,788/-.
(ii) Funding Option - In this option, Company decides to Setup an Approved Gratuity Trust . The Investment of Company is either "Self Managed " or “ Manager by Insurance Company”. Company contribute the annual contribution in this Gratuity Trust and get the Tax Benefits. In this case, when Mr. A will leave the company, gratuity will be to Mr. A from the Gratuity Trust.
Expected Tax Benefit calculation in case of “Funding Option” under Section 36(1)(v) of the IT Act 1961 for Annual Contribution which is 8.33% of Annual Basic Salary of Employee.
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
In this case, Mr. A will get gratuity of Rs. 1,20,788/- from the Gratuity Trust and employer will get approximate Tax Benefits of Rs.1,74,536/- for annual contribution made by him in previous 5 years.
To get more clarity on the above example, let us take some more questions about the possibilities/event that may happen on or after completion of 5 years and their impact on the Company in case of "Funding Option" :-
Question 1. If employee died during 1st to 4th year before completion of 5th year, then what would be the benefit for Company and employee's Nominee ?
Answer 1. If employees died after 1 yr, 2nd, 3rd and 4th year but before completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
The company will get the Tax for the contribution made by him before the date of death of the employee as stated above and employee's nominee will get following Gratuity Payments from the Trust along with a future service gratuity subject to certain limits as defined by the Insurance Company whilst taking Group Gratuity Scheme from the Insurance Company.
Question 2. If the employee resigns during 1st to 4th year and before completion of 5th year, then what would be the benefit for Company and employee?
Answer 2. If employees resign during 1st to 4th year and before completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
and the employee will not get following Gratuity Payment from the Trust. The amount contributed by the company and interest accrued will be used by the trust for future payments of Gratuity to other employees of the company.
Question 3. If the employee resigns/retires after completion of 5th year, then what would be the benefit for Company and employee?
Answer 3. If employees resigns/retires during after completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
Total Contribution in 5 years...........................= Rs.1,74,536/-
and the employee will get Rs. 1,20,788/- as Gratuity Payment from the Trust. Since the company has contributed an amount in the trust is more then what is payable after 5th year so the surplus amount and interest accrued on the contributions of will be used by the trust for payment to the other employees.
From above examples of "Pay as you go Option" and "Funding Option," it is clear that Gratuity cannot be a part of CTC but it is a legal obligation which is borne by the Company on exit of the employee.
The Company may have an option to set up a Gratuity Trust and make an annual contribution in the "Irrevocable Trust" so that he can avail the tax benefits Section 36(1)(v) of the IT Act 1961 and will have a Corpus in "Irrevocable Trust" which will be exclusively used by the Trustees to meet with Company obligation towards Gratuity Payments.
To know more about Employee Benefits Plans Restructuring as per the rules and regulations of the Act/Acts (i.e. Gratuity, Leave Encashment & Long Service Awards), Gratuity Trust Fund Set-up & Retention Schemes like Employer-Employee Scheme for your highly paid Employees.
You may avail our Consultancy Services.
With Regards
Tikaram Chaudhary
Group Gratuity Trust Fund & Group Insurance (Retention Schemes) Consultant
(Experienced Consultant with 10 years of exposure in assessment/valuations of Employees Benefit Liabilities specially Gratuity/Leave Encashment Liabilities & Retention Schemes)
Email Id: gratuityconsultant @ gmail.com
Mobile Number: 9211637063
For more details about us visit our blog at www.gratuityconsultant.blogspot.com
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 05 April 2019
A Note on factors increasing the Gratuity Payments & Benefits of Setting up Retirement Benefits Trust Fund for Gratuity Benefits
An Overview Gratuity Benefits
Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit from the company. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of 5 years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
Calculation of Gratuity Benefits
Gratuity is a statutory right of employee whoever completes 5 years in the same organization and is a terminal benefit. It means, Gratuity amount will be determined when monthly terminal wages of the employee are known to the company. The terminal wages will include Basic & Dearness allowance only. The Gratuity Benefits are calculated using following formulae :-
(15/26) multiplied by (No of Completed Years on Exit) multiplied by (Terminal Wages)
Factors affecting Gratuity Benefits
Gratuity Benefits changes with change in the following :-
(a) Past Service of Employee in the Company,
(b) Increase in wages of Employee in the Company,
(c) Change in Benefit Formulae of the Gratuity Benefit due to amendment in the Act,
(d) Change in Ceiling Limit on Gratuity Benefits due to amendment in the Act,
(e) Change in Vesting Condition for eligibility of Gratuity Benefits due to amendment in the Act,
The impact of above Factors on Gratuity Benefits can be understood by the following Examples :
(a) Change Past Service of Employee in the Company.
Mr. A Joins the Company with a Basic Pay of Rs. 2,60,000/- per month and there is no change in basic salary, only his Past Service Change then Gratuity Payments for next 5 years will be :-
On Completion of 1 Yr - (15/26)* 2,60,000*1 = 1,50,000/-
On Completion of 2 Yrs - (15/26)*2,60,000*2 = 3,00,000/-
On Completion of 3 Yrs - (15/26)*2,60,000*3 = 4,50,000/-
On Completion of 4 Yrs - (15/26)*2,60,000*4 = 6,00,000/-
On Completion of 5 Yrs - (15/26)*2,60,000*5 = 7,50,000/-
The above amounts are subject to Ceiling Limits on Gratuity Benefits applicable.
(b) Increase in wages of Employee in the Company.
Mr. A Joins the Company with a Basic Pay of Rs. 2,60,000/- per month and there is change in wages @ 10%, then Gratuity Payments for next 5 years will be :-
On Completion of 1 Yr - (15/26)* 2,86,000*1 = 1,50,000/-
On Completion of 2 Yrs - (15/26)*3,14,600*2 = 3,63,000/-
On Completion of 3 Yrs - (15/26)*3,46,060*3 = 5,98,950/-
On Completion of 4 Yrs - (15/26)*3,80,670*4 = 8,78,460/-
On Completion of 5 Yrs - (15/26)*4,18,730*5 = 12,00,788/-
The above amounts are subject to Ceiling Limits on Gratuity Benefits applicable.
(c) Change in Benefit Formulae of the Gratuity Benefit due to amendment in the Act.
Mr. A Joins the Company with a Basic Pay of Rs. 2,60,000/- per month, His increment in wages @ 10%, and due to change in the Gratuity Factor as 1/1 from 15/26 then Gratuity Payments for next 5 years will be :-
On Completion of 1 Yr - (1/1)*2,86,000*1 = 2,86,000/-
On Completion of 2 Yrs - (1/1)*3,14,600*2 = 6,29,200/-
On Completion of 3 Yrs - (1/1)*3,46,060*3 = 10,38,180/-
On Completion of 4 Yrs - (1/1)*3,80,670*4 = 15,22,660/-
On Completion of 5 Yrs - (1/1)*4,18,730 *5 = 20,93,660/-
The above amounts are subject to Ceiling Limits on Gratuity Benefits applicable.
(d) Change in Ceiling Limit on Gratuity Benefits due to amendment in the Act.
Mr. A Joins the Company with a Basic Pay of Rs. 5,00,000/- per month, His increment in wages @ 10%, and due to change in Ceiling Limit from 10 Lakhs to 20 Lakhs then Gratuity Payments for next 5 years will be :-
Case 1 - When Gratuity Ceiling is 10,00,000/-
On Completion of 1 Yr - (15/26)* 5,50,000*1 = 3,17,308/-
On Completion of 2 Yrs - (15/26)*6,05,000*2 = 6,98,077/-
On Completion of 3 Yrs - (15/26)*6,65,500*3 = 11,51,827/- Company liable to pay 10,00,000/-
On Completion of 4 Yrs - (15/26)*7,32,050*4 = 16,89,346/- Company liable to pay 10,00,000/-
On Completion of 5 Yrs - (15/26)*8,05,255*5 = 23,22,851/- Company liable to pay 10,00,000/-
Case 2 - When Gratuity Ceiling is 20,00,000/-
On Completion of 1 Yr - (15/26)* 5,50,000*1 = 3,17,308/-
On Completion of 2 Yrs - (15/26)*6,05,000*2 = 6,98,077/-
On Completion of 3 Yrs - (15/26)*6,65,500*3 = 11,51,827/-
On Completion of 4 Yrs - (15/26)*7,32,050*4 = 16,89,346/-
On Completion of 5 Yrs - (15/26)*8,05,255*5 = 23,22,851/- Company liable to pay 20,00,000/-
Case 3 - When Gratuity Ceiling is 30,00,000/-
On Completion of 1 Yr - (15/26)* 5,50,000*1 = 3,17,308/-
On Completion of 2 Yrs - (15/26)*6,05,000*2 = 6,98,077/-
On Completion of 3 Yrs - (15/26)*6,65,500*3 = 11,51,827/-
On Completion of 4 Yrs - (15/26)*7,32,050*4 = 16,89,346/-
On Completion of 5 Yrs - (15/26)*8,05,255*5 = 23,22,851/-
(e) Change in Vesting Condition for eligibility of Gratuity Benefits due to amendment in the Act.
In above examples for (a) to (d), If employee leaves the company before completion of 5 years then "Nil" gratuity benefit is payable in following events :
(a) on his superannuation, or
(b) on his retirement or resignation.
Case 1 - When Vesting Condition for eligibility is 3 years, Company will be liable to pay gratuity benefit on completion of 3 years in event of his superannuation, on his retirement or resignation.
Case 2 - When Vesting Condition for eligibility is 2 years, Company will be liable to pay gratuity benefit on completion of 2 years in event of his superannuation, on his retirement or resignation.
Case 3 - When Vesting Condition for eligibility is 1 year, Company will be liable to pay gratuity benefit on completion of 1 year in event of his superannuation, on his retirement or resignation.
Gratuity Benefits are long term benefits and are subject to above changes, so it become mandatory for Companies to make Accounting/Investment for Gratuity Benefits. In India companies have 2 options for Accounting/Investment:
(i) Pay as you go option - Where company makes a provision of Gratuity in the Balance Sheet on the accrual basis taking an actuarial report on BS date from an Actuary and as and when an employee leaves the organization, company pay gratuity from their resources and get the tax benefit for the gratuity paid.
(ii) Funding Option - In this option, The Company set up a Gratuity Trust and make an annual contribution in the "Irrevocable Trust" so that he can avail the tax benefits Section 36(1)(v) of the IT Act 1961 and will have a Corpus in "Irrevocable Trust" which will be exclusively used by the Trustees to meet with Company obligation towards Gratuity Payments.
We have a Team of Litigation Partners, Labor Law Experts, Finance/Insurance Professionals for handling Accounting/Investment for Gratuity Benefits and we have provided consultancy for administration Gratuity Trust Fund/Retirement Trust Fund in various organization in all sectors of Indian Economy on receipt of their Management request and If you wish to know details like:-
1. Who can be covered under Group Gratuity Scheme?
2. Why companies required to create a Group Gratuity Trust - Decision Making?
3. How can companies administer Gratuity Trust?
4. What are Tax Benefits to Company by setting up Gratuity Trust ?
5. What are General Benefits to Employee from a Gratuity Trust Set up by Company ?
6. Where to approach for setting up Gratuity Trust?
7. What is the documentation required for setting up Gratuity Trust?
8. What is the Process of Setting up a Gratuity Trust ?
9. Which is beneficial to trustees a Self Managed Investment or Insurance Co. Managed Investment?
10. What is the Accounting requirement for Trustees?
We may also be contacted for other alternate ways company can choose for administration of Investment for Retirement Benefits and Long Term Retention Schemes f Productive Employees/Top Management of Companies ?
With Regards
Tikaram Chaudhary
Group Gratuity Trust Fund & Group Insurance (Retention Schemes) Consultant
(Experienced Consultant with 10 years of exposure in assessment/valuations of Employees Benefit Liabilities specially Gratuity/Leave Encashment Liabilities & Retention Schemes)
Blog : https://gratuityconsultant.blogspot.com
Website : https://gratuity-trust-fund-consultant-in-delhi-ncr.business.site/?m=true
All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.
(This article is for information purpose only. It is not intended to constitute, and should not be taken as legal advice, or a communication intended to solicit or establish commercial motives with any. The firm shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained herein. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.)
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 16 April 2019
Requirement of Consultancy Services for availing the benefits of Formation of Gratuity Trust by any organization including schools”
I hope below write-up may help you in understanding the “Requirement of Consultancy Services for availing the benefits of Formation of Gratuity Trust by any organization including schools”.
The Payment of Gratuity (Amendment) Act 2018 provides Social Security to Employees working in all organizations such as a factory, mine, oilfield, port, railways, plantation, shops, establishments or Educational institution (i.e. Schools) having 10 or more employees on any day in the preceding 12.
The amount of Gratuity payable to an employee on his exit from service, according to “The Payment of Gratuity (Amendment) Act 2018 ”, in force at present, is:-
(Wages of the employee at the time of exit) x (15/26) x (Number of Years of Service at the time of exit)
This is subject to a ceiling limit of 20,00,000/- effective from 29.03.2018.
Gratuity is payable to an employee on exit from service after he has rendered continuous service for not less than five years:
(a) On his superannuation
(b) On his resignation
(c) On his death or disablement due to injury or disease.
In the case of (c) vesting condition of 5 years does not apply.
Gratuity Benefits depends upon last drawn monthly wages and is linked to the length of service, normally it goes on increasing from the time when the employee joins service and the time of his exit from service due to following factors:-
(a) Annual Increase in Past Service of Employee.
(b) Annual Increase in wages of Employee.
(c) Increase in Benefit Formula of the Gratuity due to amendment in The Act,
(d) Increase in Ceiling Limit on Gratuity Benefits due to the amendment in The Act,
(e) The decrease in waiting Condition of 5yrs. due to the amendment in The Act.
(For detailed information for the impact of the above change in Gratuity Visit my blog: https://
Due to changes in the above factors/amendment in the Act, the gratuity payments to the Employees at the time of their exit from the organization in event of retirement, resignation, disablement/ death, increases drastically and it consumes large chunk of organization profits, so it becomes mandatory for organizations to get the Actuarial Valuation Report/Certificate from An Actuary under Gratuity Plan to comply with the requirement for Accounting of Gratuity Benefits in compliance of AS 15 (Revised 2005) and IndAS 19.
Provision of Gratuity Liability in Financial Statements/Balance Sheet is not allowed as a deduction until and unless organization forms an approved Gratuity Trust as per rules of Income Tax rules, 1962 and make initial and yearly contributions into the Gratuity Trust. The initial and annual contributions made by the organization in an approved gratuity trust are treated as a deduction. Also, Income from the Gratuity Trust Investment is exempted for Income Tax.
Formation of Gratuity Trust and Assistance in preparation of Inputs for Actuarial Valuation of Gratuity requires technical and in-depth knowledge of rules/regulations, amendments of the Payment of Gratuity (Amendment) Act 2018, Accounting Standard/Accounting Standards and hence Consultation of Professionals dealing with this subject becomes mandatory for HR/Accounts/Financial Planning Departments of the organization including Schools.
We have a team-leading Professionals, Litigation Partners, Chartered Accountants, Company Secretaries & Heads of Insurance Companies having decades of experience in providing their services to our clients spread in all sectors of the Indian Economy, in the Public & Private Sectors which covers areas of Manufacturing, Software, Technology, Electricity, Electronics, Call Centers, Banks, Educational Institutes, Schools, Universities, Hotels, Hospitals, Hospitality Companies, etc. etc.
We offer telephonic/meeting consultation for the following services:-
1. Consultation for Formation Gratuity Trust Formation.
2. Consultation for Self-Managed Gratuity Trust Fund Investment Advisory
3. Consultation for Insurance Company managed Investment of Gratuity Trust.
4. Consultation for Group Gratuity Schemes of Government Insurance Compan
5. Consultation for Group Gratuity Schemes of Private Insurance Companies
6. Consultation for Income Tax Approval of Gratuity Trust Documentation.
7. Consultation for Preparation of Inputs for Actuarial Valuation under the Gratuity Plan
8. Consultation for Legal Issues involved in Gratuity Benefits Payments to Employees.
9. Consultation for Audit/Accounting Aspects of Gratuity Trust Fund.
10. Consultation for Investment in Annuity Schemes of LIC.
11. Consultation for Investment of Employee Retention Schemes in Insurance Plans of LIC.
12. Consultation for Investment of Terminal Employee Benefits in Employer-Employee and Key-man Insurance Plans of LIC.
13. Consultation for all types of Group Health, Accidental, Term, Fire- Retail/Corporate, Marin - Cargo, Marine - Hull Insurances.
14. Consultation of Corporate Accounting, Payroll Processing, ESI, PS, Labour Laws.
In case employee/employer needs any consultation in the above matters you may directly contact us as the following:-
Tikaram Chaudhary
Head Consultant
Gratuity Fund Trust Consultant
(Experienced Consultant with 10 years of exposure in assessment/valuations of Employees Benefit Liabilities specially Gratuity/Leave Encashment Liabilities & Long Service Award Schemes)
Mobile Number: 9211637063
Email ID - tikaramchaudhary @ gmail.
Linkedin Profile: https://www.linkedin.
Blog:https://
Website: https://gratuity-
All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 08 May 2019
I hope below write up may give more clarity on the provisions of Payment of Gratuity Act 1972 (Amended)”
Under the provisions of the Payment of Gratuity Act 1972 (Amended), gratuity is a statutory obligation on the shoulders of the employer to make the payment of Gratuity to his employees as soon as it becomes payable (Refer Sub Section (2) of Section 7 to the Act).
Applicability
Compliance of this act is applicable to all organizations such as a factory, mine, oilfield, port, railways, plantation, shops, establishments or Educational institution having 10 or more employees on any day in the preceding 12.
Determination of Gratuity Amount
The amount of Gratuity payable to an employee on his exit from service, according to “The Payment of Gratuity (Amendment) Act 2018 ”, in force at present, is:-
(Wages of the employee at the time of exit) x (15/26) x (Number of Years of Service at the time of exit)
This is subject to a ceiling limit of 20,00,000/- effective from 29.03.2018.
Conditions for payment of Gratuity
Gratuity is payable to an employee on exit from service after he has rendered continuous service for not less than five years:
(a) On his superannuation
(b) On his resignation
(c) On his death or disablement due to injury or disease.
In the case of (c) vesting condition of 5 years does not apply.
Gratuity Benefits depends upon the last drawn monthly wages and is linked to the length of service, normally it goes on increasing from the time when the employee joins service and the time of his exit from service
Provisions for Employer under Payment of Gratuity Act 1972 (Amended)”
Section 7 of the Act has kept obligation for payment of gratuity act on the shoulders of the employer, few provisions of the act are listed below:-
1. As soon as Gratuity becomes payable, it employers responsibility to determine the amount of gratuity and inform it to the employee in writing (Refer Sub-Section 2 of Section 7 of the Act).
2. The employer shall arrange to pay the amount of gratuity within 30 days from the date when it becomes mandatory. (Refer Sub-section 3 of Section 7 of the Act).
2. If the amount of gratuity is not paid within 30 days then the amount of gratuity and simple interest will be paid by the employer to the employee for the duration when the payment is not made to the employee. (Refer Sub-section 4 of Section 7 of the Act).
Accounting of Gratuity by the Employer
The Companies Act regulates/prescribes the Accounting Standard/Accounting Standards for the accounting of payment of Gratuity in the Financial Statements of different organizations. The compliance of Accounting Standard/standards is mandatory in nature.
The Institute of Chartered Accountants of India prescribes following Accounting Standard/standards for accounting of Gratuity by the companies:-
Accounting Standard 15 (Revised 2005)
Ind AS 19
For Accounting of Gratuity by Schools, The Institute of Chartered Accountant has issued Guidance note on Accounting by Schools (2005) or as amended at time to time.
Under the accounting preview, gratuity falls in the category of the defined benefit plan and is a post-retirement benefit. The nature of computation of post-retirement benefit is complex and hence Actuarial Valuation Certificate/ Report of an Actuary (Para 49 of AS 15 Revised 2005) forms the basis of accounting provisions of gratuity in the financial statement.
Income Tax Rules for Gratuity
Accounting provision of gratuity in Financial Statements/Balance Sheet is not allowed as a deduction under Section 40A(7) of Income Tax Act, 1961 (as amended time to time). The Section is produced below:-
“ (a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of Gratuity to his employees on their retirement or on termination of their employment for any reason.
(b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.”
For gratuity payment management, the employer has the option to fund the liabilities for payment of gratuity by setting up an irrevocable trust approved in terms of part c of the fourth schedule to the income tax act, 1961.
The contributions made by the employer in such trust is allowed as a business expense under section 36 (1) (v) of the income tax act, 1961. This section is produced herein below:-
“ (a) any sum paid by any sum paid by the assessee as an employer by way contribution towards an approved gratuity fund created by him for the exclusive benefits of his employees under an Inrrecovable Trust.”
For more details in the above matter then you may contact us at 9211637063 or email your requirement at tikaramchaudhary @ gmail.com.
I have 10 years of experience in providing consultation and have a team of leading Finance professionals, Litigation Partners, Chartered Accountants, Company Secretaries & Heads of Insurance Companies. In my 10 years of experience I have given consultation to CFOs, Directors, Heads of HR, Finance and Tax Planning department of the Companies, spread in all sectors of the Indian Economy, in the Public & Private Sectors which covers areas of Manufacturing, Software, Technology, Electricity, Electronics, Call Centers, Banks, Educational Institutes, Schools, Universities, Hotels, Hospitals, Hospitality Companies, etc. etc.
We offer consultation for the following services:-
Consultation for Traditional and Unit Linked Group Gratuity Schemes.
o Traditional Group Gratuity Schemes of LIC
o Unit Linked Group Gratuity Schemes of Private Insurance Cos.
Consultation for Restructuring of Gratuity or Leave Encashment Policy.
o For Retention of Most Productive Employees.
o For Enhancement Productivity and Liability Management.
Consultation for all types of Business Valuations
o Actuarial Valuations
o Capital Gain Valuations
o Property Valuations
o Machinery Valuations
o Shares Valuations
Consultation for Employee Retention Schemes, Retirement Investment in Annuities, Marine Insurances, EAR Insurance, Corporate Property, and Fire Insurances.
Tikaram Chaudhary
Group Gratuity Trust Fund Consultant
Office Address : R 11, F/F, R Block, Vikas Nagar, New Delhi -110059
Mobile Number : 9211637063
Email Id : gratuityconsultant @ gmail.com
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(All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.)
Nitin H
(Private)
(29 Points)
Replied 07 August 2022
For any assistance required with respect to Gratuity trust, superannuation trusts or any employee benefit schemes, do connect on below mentioned email id a1consultancyservices @ yahoo.com. We are a 9 year old firm entrusted by many indian and multi national companies, we are specializing in the field of corporate employee benefits. Thanks
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