Saswatabanerjee
Partner - Risk Management
Kannanmv
Hr & Administration
TIKARAM CHAUDHARY
Gratuity Fund Formation Consultant
Nathrao
Insolvency N Gst Professional
Jkct15
Deputy Manager - Hr
+2 Others

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Assume, my basic salary is Rs 15000/- and i have worked for eight years in a company. What amount of gratuity can i get if i resign today?
Also need to know whether the employers deposit this amount with some government agency like LIC and the way to find out the accumulated gratuity.

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HI
you are eligigle to receive gratuity of Rs. 69230 (15000/26*15*8). Company's follow different methods like having their own trust account or account with some govt anf non govt agencies. But you cant check with them for accumaltion. For sure you are eligible for the above said amount, if you have continuosly worked with your current employer.
There is no question of finding out the accumulation, as it is immaterial.
You are eligible for gratuity based on 15 days salary for each of the year worked.
Ofcourse, there is no gratuity if you have worked for less than 5 years.
It does not matter how much the company has put into its fund or into any LIC scheme
Your information is incomplete. You have mentioned only about Basic pay. What about DA & other salary components which are included in term "salary" or "Wage". Formula for computation of Gratuity is given in PG Act. Pl go thru it and you will have your answer. As regards deposit of Gratuity with LIC, it doesn't matter. This arrangement of LIC comes into picture, when the employee dies while in service. The other details are not of your concern as of now.
AK Jain
Greetings Sandsky,

As informed by our learned members Gratuity payable to you has been explained to you.

As regards Gratuity scheme with LIC of India.

a) The company's form a trust and then deposit the gratuity liability indicated by LIC based on an actuarial valuation done every year.

b) The actuarial valuation is done based on the data provided by the employer.

c) This fund also earns interest but the interest is for the principal amount deposited by the employer and there is no benefit that accrues to the employee technically.

d) If an employee resigns from the organisation and is eligible to receive Gratuity, the company files an application with LIC

e) LIC releases the amount claimed after verification of the data provided by the employer to the Gratuity fund maintained by the employer. However, the gratuity is paid by LIC until there is fund deposited by employer lying with it.

f) The employer in turn releases the amount to the employee.

g) If the employer remits a risk premium to LIC, LIC releases Gratuity for the period of service rendered by him and also for the period he would have continued in service if he were alive till his superannuation from the company.

Trust the matter is clear.

Regards
Hi,
Monthly gratuity amount is to be deposited in any Government agency or company keeps self record for that.
Who are later liable to pay to employee.
Please help in clearing this point.
ashok
Company is legally bound to pay gratuity.
They are equally bound to enter into Group gratuity schemes and employee is not required to be checking on monthly basis whether contribution is paid our not.
In case gratuity is not paid, employee can complain to Labour Commissioner of area for redress.
is there any annual return of gratuity??
Benefits of Set up of Gratuity Trust by the Companies
Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit from the company. Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years, -
(a) on his superannuation, or
(b) on his retirement or resignation, or
(c) on his death or disablement due to accident or disease:
Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement:
Gratuity is a statutory right of employee whoever completes 5 years in the same organization and is a terminal benefit. It means, Gratuity amount can be determined only on the monthly terminal wages of the employee on his exit from the Company after completion of 5 years of Service. The cost is to be borne by the Company and not by an employee. hence, unlike other fringe benefits (i.e. Medical Insurance, Term Insurance & Accidental Insurance) it can not be part of CTC.
To understand this, let us take an Example,
Mr. A Joins the Organization with a Basic Pay of Rs. 26,000/- per month and monthly CTC of 50,000/-. Assuming that expected increase in basic salary is assumed to be 10% p.a.
Now Gratuity Payments for next 5 years will be :-
On Completion of 1 Yr - (15/26)* 28,600*1 = 16,500/-
On Completion of 2 Yrs - (15/26)*31,460*2 = 36,300/-
On Completion of 3 Yrs - (15/26)*34,606*3 = 59,895/-
On Completion of 4 Yrs - (15/26)*38,067*4 = 87,847/-
On Completion of 5 Yrs - (15/26)*41,873*5 = 1,20,788/-
Now for making the payment of gratuity, Company has 2 options :
(i) Pay as you go option - Where company makes a provision of Gratuity in the Balance Sheet on the accrual basis taking an actuarial report on BS date from an Actuary and as and when Mr. A leaves the organization, company pay gratuity from their resources and get the tax benefit for the gratuity paid.
Expected Tax Benefit calculation in case of "Pay as you Go Option" :-
For Provision of 1st Yr - NIL
For Provision of 2nd Yr - NIL
For Provision of 3rd Yr - NIL
For Provision of 4th Yr - NIL
For Payment on 5th Yr - 1,20,788/-
In this case company, Mr. A will leave the company then company will get the tax benefit of Rs. 1,20,788/-.
(ii) Funding Option - In this option, Company decides to Setup an Approved Gratuity Trust . The Investment of Company is either "Self Managed " or “ Managed by Insurance Company”. Company contribute the annual contribution in this Gratuity Trust and get the Tax Benefits. In this case, when Mr. A will leave the company, gratuity will be to Mr. A from the Gratuity Trust.
Expected Tax Benefit calculation in case of “Funding Option” under Section 36(1)(v) of the IT Act 1961 for Annual Contribution which is 8.33% of Annual Basic Salary of Employee.
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
In this case, Mr. A will get gratuity of Rs. 1,20,788/- from the Gratuity Trust and employer will get approximate Tax Benefits of Rs.1,74,536/- for annual contribution made by him in previous 5 years.
To get more clarity on the above example, let us take some more questions about the possibilities/event that may happen on or after completion of 5 years and their impact on the Company in case of "Funding Option" :-
Question 1. If employee died during 1st to 4th year before completion of 5th year, then what would be the benefit for Company and employee's Nominee ?
Answer 1. If employees died after 1 yr, 2nd, 3rd and 4th year but before completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
The company will get the Tax for the contribution made by him before the date of death of the employee as stated above and employee's nominee will get following Gratuity Payments from the Trust along with a future service gratuity subject to certain limits as defined by the Insurance Company whilst taking Group Gratuity Scheme from the Insurance Company.
Question 2. If the employee resigns during 1st to 4th year and before completion of 5th year, then what would be the benefit for Company and employee?
Answer 2. If employees resign during 1st to 4th year and before completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
and the employee will not get following Gratuity Payment from the Trust. The amount contributed by the company and interest accrued will be used by the trust for future payments of Gratuity to other employees of the company.
Question 3. If the employee resigns/retires after completion of 5th year, then what would be the benefit for Company and employee?
Answer 3. If employees resigns/retires during after completion of 5th year, then the company will get tax benefits for the following contributions:-
For Contribution of 1st Yr - 28,600*12*0.833 = 28,589/-
For Contribution of 2nd Yr - 31,460*12*0.833 = 31,447/-
For Contribution of 3rd Yr - 34,606*12*0.833 = 34,592/-
For Contribution of 4th Yr - 38,067*12*0.833 = 38,051/-
For Contribution of 5th Yr - 38,067*12*0.833 = 41,857/-
Total Contribution in 5 years...........................= Rs.1,74,536/-
and the employee will get Rs. 1,20,788/- as Gratuity Payment from the Trust. Since the company has contributed an amount in the trust is more then what is payable after 5th year so the surplus amount and interest accrued on the contributions of will be used by the trust for payment to the other employees.
From above examples of "Pay as you go Option" and "Funding Option," it is clear that Gratuity cannot be a part of CTC but it is a legal obligation which is borne by the Company on exit of the employee.
The Company may have an option to set up a Gratuity Trust and make an annual contribution in the "Irrevocable Trust" so that he can avail the tax benefits Section 36(1)(v) of the IT Act 1961 and will have a Corpus in "Irrevocable Trust" which will be exclusively used by the Trustees to meet with Company obligation towards Gratuity Payments.
We have provide consultancy for administration Gratuity Trust Fund in various organization in all sectors of Indian Economy on receipt of their Management request and If you wish to know details like:-
1. Who can be covered under Gratuity Trust Fund?
2. How can companies administer Gratuity Trust and avail of the tax benefits?
3. Benefits to Employer,
4. Benefits to Employee,
5. Gratuity Trust Fund -Interpretation of Tax Implications.
We may also be contacted for the structuring of other Retention Schemes, Group Health Insurances, Group Terms Insurances, Group Annuity Plans, Property/Fire Insurances and investment in 100% risk Free Government of India Bonds (GOI Bonds)
With Regards
Tikaram Chaudhary
Group Gratuity Trust Fund & Group Insurance (Retention Schemes) Consultant
(Experienced Consultant with 10 years of exposure in assessment/valuations of Employees Benefit Liabilities specially Gratuity/Leave Encashment Liabilities & Retention Schemes)
Email Id:
Mobile Number: 9211637063
For more details about us visit our blog at www.gratuityconsultant.blogspot.com
All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.
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