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PAYMENT OF GRATUITY ACT, 1972 APPLICABILITY : On Employers with ten or more Employees

GROUP GRATUITY SCHEME. PAYMENT OF GRATUITY ACT, 1972 APPLICABILITY : On Employers with ten or more Employees. GROUP GRATUITY SCHEME. GRATUITY : A Lump Sum Benefit 15 days’ salary for each year of completed service Service of 6 months or more taken as one year

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PAYMENT OF GRATUITY ACT, 1972 APPLICABILITY : On Employers with ten or more Employees

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  1. GROUP GRATUITY SCHEME PAYMENT OF GRATUITY ACT, 1972 APPLICABILITY :On Employers with ten or more Employees

  2. GROUP GRATUITY SCHEME • GRATUITY: • A Lump Sum Benefit • 15 days’ salary for each year of completed service • Service of 6 months or more taken as one year • Maximum amount, Rs. 3.5 lakhs WHEN PAYABLE: • On Death or disablement • On Retirement or Superannuation • On Resignation

  3. GROUP GRATUITY SCHEME • Minimum service condition of 5 years does not apply in case of death or disablement • Gratuity Act specifies minimum payable gratuity. An employer may pay more than it

  4. GROUP GRATUITY SCHEME METHODS OF MEETING THE LIABILITY • PAY-AS-YOU-GO (PAYG) • FUNDING

  5. GROUP GRATUITY SCHEME ADVANTAGES OF FUNDING • Sound financial Principles require advance funding • Liquidity or cash flow problems may arise in future, if not funded • Overstatement of profit for taxation purpose hence advancement of tax, if not funded • Security for employees

  6. GROUP GRATUITY SCHEME • FUNDING THROUGH LIC’s • GROUP GRATUITY SCHEME • Flexibility of contributions • Trustees relieved from investment of funds • Full liquidity

  7. GROUP GRATUITY SCHEME • FUNDING THROUGH LIC’s GROUP GRATUITY SCHEME (Contd..) • Attractive experience based yield • 100% security of capital • Additional death cover based on prospective serviceat a nominal cost

  8. GROUP GRATUITY SCHEME ADDITIONAL SERVICES AT NO SEPARATE COST • ACTUARIAL VALUATION • CERTIFICATE AS PER AS - 15 • DOCUMENTATION AND LEGAL ADVICE • ADMINISTRATION • YEAR END FUND ACCOUNT WITH FULL DETAILS

  9. GROUP GRATUITY SCHEME STEPS FOR INSTALLATION OF SCHEME • DECIDE TO FUND (BOARD RESOLUTION) • APPOINT THE TRUSTEES • DRAFT AND EXECUTE TRUST DEED AND RULES • CREATE A FUND • APPLY TO COMMISSIONER OF INCOME TAX FOR APPROVAL

  10. GROUP GRATUITY SCHEME TAXATION ASPECTS • FOR EMPLOYER • Annual and past service Contributions are allowed as business expense (Maximum limit is 8 1/3% of Annual Salary in respect of each member). (Section 36(1)(v)) • Past Service contributions may be paid in lumpsum or in instalments (maximum five) • Interest Income received by the trust is exempt from Income-tax (Section 10(25)(IV)

  11. GROUP GRATUITY SCHEME TAXATION ASPECTS (Contd..) • FOR EMPLOYEES • Contribution paid by an employer is not treated as an income in the hands of the employee • Gratuity amount is not taxable upto Rs. 3,50,000/- (Section 10(10)(iii)) • Amount payable on death of the member is not taxable

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