Group Gratuity
Gratuity is a statutory liability of most of the employers, which accrues to an employee for every year of service put in by him.
Under the Payment of Gratuity Act, 1972, it is employer’s statutory liability to pay 15 days salary (15/26 of a month’s wages) for every completed years service to each of his employees on their exit, for any reason after five years of continuous service, subject to maximum limit of 20 Lacs as per new amendment.
BENEFITS:
· It is mandatory to have a gratuity provision in the book of account every year by an employer the sound system of financial management envisages providing for Gratuity liability every year and claiming the tax benefits as it is mandatory as per Accounting Standards 15 (AS15) to account for the liability on Accrual basis.
· In case of LIC managed trust, the job of investment and actuarial valuation is taken over by the corporation and in addition, interest is paid by the Corporation on the accumulated funds.
· TAX BENEFIT Part C of IV schedule of Income Tax Act-1961- Treated as business expenditure in Profit & Loss account.
· ACCRUED ANNUAL COMPOUND INTEREST Declared Quarterly ON THE FUNDS PARKED and the interest earned is tax free.
· Sovereign guarantee of the fund as per Sec-37 and investment in Government Securities.
· Additional death covers to all the employees based on prospective service irrespective of service condition.
LIFE COVER – AN ADDED ATTRACTION
A unique feature of our Scheme is to provide, in the event of pre-mature unfortunate death, a sum equal to the gratuity payable in respect of the entire service (actual and future). Future service gratuity i.e. life cover is restricted to limits as specified herein below and subject to overall gratuity limits as per rules of the company
GRATUITY FORMULA: 15/26 X (Basic+DA) X (Number of years of service completed)
| Condition | Age in Years |
|---|---|
| An employee joined the service at age | 25 Years |
| Retirement age | 60 Years |
| Death at age | 35 Years |
| Anticipated service | 25 Years |
| Salary at the time of death | Rs.10000/-per month |
| Gratuity on the accrued basis | Rs. 57692/- approx |
| Gratuity on anticipated basis | Rs.2,01,923/- (accrued Gratuity plus life cover of Rs. 1,44,231/- approx) |
- ACTUARIAL VALUATION CERTIFICATE AS PER AS – 15.
- YEAR END FUND ACCOUNT WITH FULL DETAILS.
- 100% security of capital and Flexibility of contribution as per the provision for gratuity liability.
LEGAL AND TAXATION ASPECTS
The provisions relating to approved Gratuity Funds are set out in Part ‘C’ of the Fourth Schedule of the Income-Tax Act, 1961 and part XIV of the Income-tax rules, 1962.
The list of important aspects and the relevant rules/ sections dealing with these aspects and clauses in the Model Trust Deed / Rules of LIC dealing with these aspects are detailed below: