Saswatabanerjee
Partner - Risk Management
Korgaonkar K A
Ba,llb,mpm,dir&pm,dll&lw,d.cyber
Rajesh Kumar Dubey
Manager - Hr
+1 Other

I have completed 4.9 years in my current organization, today i want to resign and my HR told me that i am not eligible for Gratuity as organization has tieup with LIC. please guide for my issue.
15th September 2016 From India, Chennai
Dear Patel
Try to serve 3 months more in current organization for getting gratuity.
2.5 Months Basic Salary are important and if needed . Legally you have to
complete eligibility criteria of 05 years from your date of joining.
Otherwise , if u have a good opportunity , grasp it and get compensated with progressive
employer in another forms which u may better understand. Above amount can't be bar on
your progress.
Best Of Luck
Thanks
15th September 2016 From India
Whenever an employee renders the service of 4 years and 240 days in the employment, he is entitled to get Gratuity from his employer, as per the verdict of Madras High Court in the land mark judgment of the case Mettur Beardsell Vs RLC, Madras and two others. In your case you have rendered the continuous service of 4 years and 9 months which would definitely satisfy the requirement of the said Judgment. Therefore, in my view, you are entitled to get gratuity payment from your employer. Try to make an appeal politely by referring this judgment for gratuity payment. In the case of failure, you may think of filing a petition before the Asst. Commissioner of Labour (who is the controlling authority under the P.G Act) of the Jurisdiction of your employer for seeking remedy. Regards,
15th September 2016 From India, Mumbai
Dear Queriest Friend,
It seems to me that you are from Chennai and if it is so, you are governed by the verdict of Madras H C which is stated by SRIDHARAN in post #3. Accordingly, you are entitled to gratuity. Show this verdict to your HR.
There is similar verdict of Kerala HC.
If you are not from Chennai or from Kerala, you are not eligible to gratuity as per me. However, many of the learned members of this Forum are disagree with me. If you do search previous many threads on gratuity, you will find it.
You need to take legal opinion.
15th September 2016 From India, Mumbai
The answer of the HR department is actually stupid.
He is not dismissing your claim on the ground that you have not completed 5 years.
he is saying they have an arrangement with LIC. Well, it does not matter what arrangement the company has created to fund the gratuity scheme. What is important to note is that they are liable to pay you. The fact that LIC will pay the amount to them is a different story and has nothing to do with your claim to gratuity. The claim to gratuity and its eligibility is defined by the Gratuity Act and any agreement signed by the company has no effect on a legally binding resonsibility
25th September 2016 From India, Mumbai
How Company can get Tax Benefits by setting up a Gratuity Trust before 31.03.2019 ?
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)
Blog : http://gratuityconsultant.blogspot.com
Website : https://gratuity-trust-fund-consulta...s.site/?m=true
All Consultancy Services provided by us are subject to terms & conditions will be stated when a consultation job is accepted.
26th February 2019 From India, Delhi
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