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Thread Started by #kanaka

Hi All Greetings I would like to know the full details of Group Gratuity Scheme / Group Accident Scheme and Group Medical Scheme. Kanaka
20th September 2005 From India, Madras
Dear Kanaka

Answer to your queries is as under:

Group Gratuity Scheme : Under section 4A of the Payment of Gratuity Act,1972 gratuity amount is required to be insured by the employers. In this context Life Insurance Corporation of India has floated a policy for insurance of gratuity to the employees of organisation.

Under the above , a trust is required to be established by the employer for the purposes of managing the gratuity funds. Trust will will create a fund with the LIC against payment of gratuity. Contribution towards the fund are generally intimated by LIC to trust on annual basis. This calculation is based on accturial basis. The other part is insurance of the fund. Trust will deal with the LIC for payment of contributions towards the gratuity fund and Insurance premium for the insurance of gratuity to the employees of the company.

These premiums are to be paid on annual basis.

Benefit of the same to the employer is that the contributions paid by employer to gratuity trust will be recognised as expenses for the year in balance sheet though these are to be utilised in future. Further in case a big number of employees leave organisation at one time , the financial burden on the emloyer will not be directly proportionate to the number of employees left. The reason is that the employer has already discharged his liability in parts and has paid annual premium.

The other biggest benefit is that in case of death of an employee during the course of employment , the nominee will get gratuity amount not only for the period of rendered services but till the date of retirement.This part is being taken care by LIC against the insurance premium paid by employer.

It is suggested that before making trust rules ( Model copies are generally provided by the LIC) please go through the same and amend as per your requirement.

This trust is also required to be recognised by Income Tax Authorities. This part is being taken care by LIC.

Group Accident Insurance : Most of the GIC insurance companies are dealing with these types of policies. Under this an amount is required to be insured against each and every employee of the organisation. In these policies , in case of accident when an employee is recommended for bed rest by the doctor. This insurance coverage takes care of loss of salary to employee and also to an extent of medical bill. Second part is again a part of policy to be taken care of by the employer while paying the premium. Payments under these policies to employee is on weekly basis and lumsump payment in case of permanent disablement as per schedule and full insurance payment in case of death.

Group Mediclaim policies : These are policies floated by insurance companies for protection of employees against the list diseases insured by insurance company. These caters towards payment of hospitalisation charges including fee of consultant or surgeon and also medical procedures and medicine purchase. These policies cover reimbursement of pre and post hospitaliastion expenses born by individual.

Under this for raising a claim 24 hours of hospitalisation is must. Pre hospitalisation expenses are reimbursable only if the same leads to hospitalisation. Further treatment has to be carried out at recognised / registered hospital.

I hope this gives you an idea on the subject.

Anil Anand
29th September 2005 From India, New Delhi
Can I get a comparison study between LIC 's Group grauity scheme (GGCA) and other’s gratuity schemes siyad p.i
20th August 2008 From India, Kochi
Dear Sir,
Thank you for your valuable information.
You have told we need to register under IT act, This trust itself is created only for the purpose of Employees and for there benefits. There wl not be any other transaction. How can we file a return if we register under IT.
Please also let me know will there be any dificulties for the company after creating trust a/c.
Thanks & Regards
18th September 2008
LIC Group Gratuity Scheme

What is the nature of this scheme?

LIC Group Gratuity Scheme which is also called as Cash Accumulation Scheme is a plan which is launched under the Payment of Gratuity Act to provide a convenient mode to fund the statutory obligation of an employer. It helps the employer to carry their obligation to a higher level.

According to The Payment of Gratuity Act, 1972, the employer has to pay about 15 days salary which is equivalent to 15/26 of a month's wages, to its each and every employee for every successful year's service, if they exit after their continuous five years of service on any reason, with the maximum limit of up to 3.5 lacs.

If the employer desires, even higher benefits can also be provided. When liability arises, as per the LIC Group Gratuity Scheme gratuity can be paid to the employees, which could be claimed under the P & L account as the deductible expense.

What are the attractive returns of this scheme?

The following are the attractive returns that are available under this LIC Group Gratuity Scheme. Depending on the size of the fund, a very attractive rate of interest would be offered by the LIC. As per the Section 36(1) (v), the ordinary annual contribution that is made by the employers is treated as deduction in the business income computation.

When we consider the initial contribution that is made by the employer, according to the Rule 104 there is no limit made on the amount. The date on which the funds are set up, the initial amount has to be paid either in full or equally divided 5 year installments.

Also, under this LIC Group Gratuity Scheme, according to the Rule 104, the permitted deductions should not cross 8 1/3% of the past salaries
25th February 2010 From India, Mumbai
what is the minimum number of employees that can be covered under the gratuity scheme in an establishment.
3rd May 2010 From India, Ahmadabad
Maximum gratuity payable under the act has been changed from 350000 to 100000. not sure if it has been officially approved.
3rd May 2010 From India, Ahmadabad
Maximum gratuity payable under the act has been raised to 500000 and has been officially approved
1st October 2010 From India, Pune
1) For Gratuity Payment Management, Employer has option to fund the liabilities for payment of gratuity by setting up an irrevocable Trust and making contributions to the Trust Fund. The Gratuity Trust Fund must be approved in terms of Part C of the Fourth Schedule to the Income Tax Act, 1961. If a Trust Fund is set up contributions can be allowed as deduction under section 36 (V) of the Income Tax Act, 1961 as reproduced below:

“any sum paid by the assessee as an employer by way of contribution towards an

approved fund created by him for the exclusive benefit of his employees under an

irrevocable Trust”. While payment of contribution is allowed as deductible

expenditure, gratuity payments will not be allowed as business expenditures since

gratuity will be paid out of the Trust Fund.

2) The interest income of the Gratuity Fund is not liable to Income Tax in terms of

Section 10 (25) (iv) of the Income Tax Act, 1961 which deals with “Income not

included in total income”.

25 (iv) “any income received by the Trustees on behalf of an approved Gratuity


3) Gratuity Trust Funds are also subject to Part XIV of the Income Tax Rules, 1962.

Income Tax Rules 98 to 111 deals with “Approved Gratuity Funds”. Most of the

Rules are procedure but more important Rules are reproduced below :

Rule 102 : Admission of directors to a fund

“ Where the employer is a company as defined in clause (i) of sub-section (1) of

section 3 of the Companies Act, 1956 (1 of 1956), a director of the company may

be admitted to the benefits of the fund only if he is a whole time bonafide

employee of the company and does not beneficially own shares in the company

carrying more than five per cent of the total voting power.”

Rule 103 : Ordinary annual contribution

The ordinary annual contribution by the employer to a fund shall be made on a

reasonable basis as may be approved by the Chief Commissioner or

Commissioner having regard to the length of service of each employee concerned

so, however, that such contribution shall not exceed 8 1/3 percent of the salary of

each employee during each year.”

Rule 104 : Initial contributions

“The amount to be allowed as a deduction on account of an initial contribution

which an employer may make in respect of the past services of an employee

admitted to the benefits of a fund shall not exceed 8 1/3 percent of the employee’s

salary for each year of his past service with the employer.”

Initial contribution in respect of past services was expected to be paid in one lump

sum but in terms of relocation, it can be paid in installments over a period not

exceeding five years. Annual contributions are restricted to 8 1/3 % of current

salary although gratuity is payable on final salary.

For any requirement for creation of Gratuity Fund, then you can contact us on below given contact details :

Tikaram Chaudhary

14th December 2012 From India, Delhi
Can any one send LIC Group Gratuity Formula for Calculation Premium?
16th January 2014 From India, Pune
This post is an attempt to give a brief about Impact of increase in Salary and Past Service on Gratuity Payments and requirement of Gratuity Trust Fund to meet .
Gratuity benefits are governed by  "The Payment of Gratuity Act 1972" and paid by the employer 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 case of (c) vesting condition of 5 years does not apply.
Liability on account of gratuity experiences sharp increase every year due to the nature of its computation. Apart from an increase in service, an increase in salary also contributes to increase in liability substantially as the benefits are payable on the last drawn salary.
For Example,
Gratuity Liability of an employee of 35 yrs. with basic salary as Rs, 26,000/- and have completed 5 years of Past service as on 31.03.2018 will be :-
= 75,000/-
Case 1
Gratuity liability with Increase of 1 year past service and without any increment in Basic Salary.
Gratuity Liability of an employee of 36 yrs. with basic salary as Rs. 26,000/- and have completed 6 years of Past service as on 31.03.2019 will be :-
= 90,000/-
Case 2
Gratuity liability with Increase of 1 year past service & 5% increment in Basic Salary (i.e. 26000*1.05 = 27300/-)
Gratuity Liability of an employee of 36 yrs with basic salary as Rs. 27,300/- and have completed 6 years of Past service as on 31.03.2019 will be :-
 (15/26)*27300*6 = 94,500/-
Gratuity Liability on retirement in 31.03.2043 with 5% increment in Basic Salary {i.e. 26000*(1.05^25) = 88045/-}
Gratuity Liability of this employee on retirement at age 60 yrs with basic salary as Rs. 88,045/- with 30 years as on 31.03.2043 will be :-
 (15/26)*88045*30 = 15,23,860/-
From above example, it is clear that with a small change of 5.00% in basic salary, increases the gratuity liability by 1.26times in 1 year. Similarly 5% increase over next 25 yrs in Basic Salary will increase the gratuity liability 20.32 times which is payable on 31.03.2018 . Hence it becomes mandatory for employer to start investing in Gratuity Fund with consistent growth and insulated from market risks.
To know more about : -
1. Steps Involved in creating a Gratuity Fund,
2. How to use Gratuity Fund as Retention Tool for curbing the attrition rate,
3. Quantum of Income Tax Benefits of creating Gratuity Fund,
4. Steps Involved  Approval of Gratuity Trust Fund from competent Authority,
5. Critical issues & Features of Group Gratuity Schemes of Insurers
3rd February 2019 From India, Delhi
Tika Ram Chaudhary - Gratuity Trust Fund Consultant in Delhi NCR Region
Gratuity, as is well known, is a statutory liability of the employer. Also, since Gratuity is calculated on the basis of the last salary drawn, the liability of an employer increases rapidly as years pass on or as the salary of the employees increase. Organizations with sizeable Gratuity liability must have the Gratuity liability valued and funded separately. Dedicated Gratuity funding is one of the fundamental principles of sound corporate governance.
As a prudent financial practice, as well as for appropriate taxation planning and investment management, it is advisable for organizations to Form an Approved Gratuity Fund. The contribution made by the companies into an approved Gratuity Fund is allowed as deductible expense under section 36 (1) (v) of the income tax act, 1961. Similarly Interest earned by the Approved Gratuity Fund is also Tax free. Contribution received from the employer into an approved Gratuity Fund and Tax Free Interest earned from the Investment together is used by the Trust to dispose of the Gratuity Liability of the company in future.
We offer our Consulting Services for Establishment of an Approved Gratuity Fund and Advisory Services for Investment of Gratuity Fund either into Group Gratuity Schemes of Insurer or into Self- Managed Investment as per the guidelines of the Regulator. We have given our consultation to CFOs, Directors, Heads of HR, Finance and Tax Planning department of the Companies for Formation of an approved Gratuity Trust and its Investment. Our clientele is 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,
In case you need our consultancy services, then you may contact us at the following:-
Tikaram Chaudhary
Gratuity Trust Fund Consultant
(10 Years of Experience in Gratuity and Leave Encashment Valuations and Formation of Trust fund)
Office Address : R 11, F/F, R Block, Vikas Nagar, New Delhi -110059
Mobile Number : 9211637063
Email Id : ,
LinkedIn Profile :
(All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.)
5th June 2019 From India, Delhi
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