Gratuity Valuation

Dear Smita,

Acturial valuation of Gratuity liability is mandatory under Income Tax Act. It should be annually. The acturial valuation of Leave Encashment Liability is also mandatory.
This practice is started from F.Y. 2007-08, so wait, more certified Actuary will be available this year.

Thanks
Mohd. Arif Khan

dear smita,
u can consult with ur organization's PF consultant for the said purpose.
rgds

TRY it out yourself and if require ask your auditor to check it.

Below menitoned is formula's to calculate Gratuity:

A-Basic+DA * 15 / 26 * No. of Year
B-Basic+DA/26*15*No.of Services

Hi

Gratuity valuation by a certified Actuary is essentially required to ensure that the organisation has made neccessary provisions for payment of gratuity to its employees upon resignation or winding up.

Internal/External auditors use the Actuaries reports to check whether the provisions are made accordingly. This also forms as a check point to ensure that the organisation is not under-funding the gratuity account.

Attached are the details of one such actuary based out of Mumbai.
K A Pandit - 022 22042231

Hope this helps
Regards
Ronnie

Hi,

If the gratuity fund is maintained by a trust in the organisation you may have to get it certified by an Actuary. Even if we have done the calculations which is 100% right, it has to be certified by the actuary. We may have to provide our assumptions on annual attrition rate, % increase in salary etc..

If the fund is maintained by the insurance company we may demand the report form them. The insurance companies will have acturies appointed in their organisation and there is no additional cost attached to it.

It is rightly said that, if there are any leave encashment policy, the acturial valuation has to be done for the leave as well and the certificate has to be obtained in the AS 15 prescribed format.

Both this activities has to be done annually and preferrably at the end of the financial year.

Please let me know your mail ID i shall refer an actuary.

Regards,

Deepa Sudhakar

Hi Smitha,

The valuation certificate for statutory payments are not much important prior to Sathyam scam. The statutory payments are valued by the management themselves and make provisions in their books of accounts accordingly. After Sathyam scam, all statutory payments are focused for valuation certificate to ensure the accurals and deposits.
Not only gratuity but other statutory payments has to have valued certificate as per accounting standards. Now accounting standards are given formost importance after such a scam.
Sorry, I have no specific guy to do such certification. Normally they will charge nominal amount for certification not high as you said.
with warm regards,

T.Kumar

Hi smita,
Grautity valuation from actuary is compulsory if your company has employed more than 20 employees and also on some specific cases, please go through the AS15 (Accounting standards). if you r exempt from actuarial valuation, u can do normal arithmatic calculation(basic+da*26/15*no of yeas completed in service with the company).

Contact number
Name: Thanawala
Tel: (91 22) 6694 3311

Dear All,

Thank you so much for your replies. I am confused now, as per few replies gratuity valuation by a certified actuary is mandatory but few are saying you can get it done in the Company itself. Please advise.

Thanks,
Smita

Experts please advise.

After reading the posts I have many queries and I request citehr members with real and complete knowledge to guide all members on following points:

1. I am assuming that gratuity payment provision is to be made in annual books of accounts every year. Is it ok to make provision of actual gratuity payable as on 31st March to all the eligible employees onboard.

2. In case company is having gratuity trust and having tieup with insurance company and paying regular primium to them, is there a need to make seperate provision again.

3. In case provision is to be made as per point no. 1 above, it will be a huge provision but it is a simple arithmatic calculation and there is no need of actuary and expert.

4. How acturial calculation is different? Will the provision be higher or lower than point no. 1 above? Why? and How?

Experts please educate.
Thanks & Regards

Dear Smita

As far as I know if you have more than 20-25 employees, you need to do a gratuity valuation annually. This is mainly from an accounting perspective as they do it to for balance sheet and P&L preparation. It is preferred if you use an actuary to do the valuation.
Our company uses:
Thanawala Consultancy Services,
Swagatam, 1st Floor,
S.V.Road, Khar,
Mumbai - 400 052, India
Tel. No : (91 22) 6694 3311
Fax No : (91 22) 6694 3322
Website: firm of actuaries and consultants,actuaries and consultants firm,actuariel and various employee benefit related consultancy services,employee benefits

They are reasonably priced and do a very systematic job.

regards
Rose S