The Group Gratuity Scheme operates this way
1. The company enters into a formal agreement with the LIC of India and forms a Gratuity Scheme.
2. The scheme is called in the company's name.
3. The company submits a list of employees, Date of Birth, Date of Joining & Basic wages + DA to LIC.
4. LIC computes the Gratuity Liability of the company and requests the company to deposit the amount to LIC. This amount attracts interest at the rates announced by LIC of India.
5. Upon receiving the resignation letter from an employee, eligible to receive Gratuity the company submits a claim form to LIC in specified format claiming the Gratuity amount from the Fund. LIC cross verifies the details and forwards the cheque to the Gratuity scheme (EMPLOYER). The employer in turn releases the cheque to the employee. LIC does not pay directly to the EMPLOYEE.
6. Every year LIC makes an actuarial valuation of the fund available based on the employee inputs given year after year by the employer and advises the employer to match the fund requirement.
7. But if the fund availability is below the liability and the employer does not pay matching contributions LIC will restrict the Gratuity amount to the extent of fund available.
8. The important feature of this scheme is by paying a marginal risk premium LIC pays Gratuity to an employee (through the employer) who dies whilst in service till his probable date of superannuation. In other words Gratuity will be paid as if he were alive till superannuation. If he dies at the age of 45 years and is eligible to receive gratuity for say 10 years LIC will pay Gratuity for 23 Years (58 Years - 45 Years = 13 Years + 10 Years)
9. The question of refund does not arise as it is a pooled fund and the liability of the employer on any given date is only considered and LIC does not process and make payments to employees directly.
I trust I have explained the matter well.