Gratuity Fund Management and Compliance
Gratuity Fund has to be created by a deed and registered for the management of funds and authority:
1. Opening of a Gratuity Fund account with a Nationalized Bank.
2. Valuation done by an Authorized Actuary: You need to furnish a statement of employees with their date of birth, date of joining, and monthly salary details. Provide a column for the actuary to fill in the gratuity accrued to them as per the Gratuity Act.
3. Before the company's year-end accounts, you must provide the provision of gratuity in the books of accounts. Before its due date, that money should be deposited into the Gratuity Fund account you maintain with a Nationalized Bank.
4. From next year, every year you will send the statement before the year-end and get the valuation done. The total gratuity provision as per the new statement will show how much has already been created. You will now provide the difference and transfer the funds to the Gratuity Fund account. For instance, if the previous year's valuation shows Rs.1,85,000/- and the new valuation shows Rs.2,25,000/-, then the difference of Rs.40,000/- will be the current year gratuity provision you have to pay into the current account of the Gratuity Fund Account with the Nationalized Bank. Unless this money is paid before the due date, Income Tax will not allow this as a deduction. So, payment of money into the Gratuity Fund account with proof is mandatory.
How to Manage the Gratuity Fund Account
There is a statutory provision for the investment of Gratuity Fund money in authorized securities. You will get a copy from the actuary, who will guide you.
1. Invest this amount in the manner (%) prescribed by the act and rules of the Gratuity Act. They will say 40% in Central or State Government Securities, another in other forms of security; 40% in a special account with the Nationalized Bank itself as per the Gratuity Act. The balance in the current account, say 20%, to make the 100%. You have to check if the listed investments are authorized under the Gratuity and eligible securities. Otherwise, it is not an authorized investment under the Gratuity Act and Rules.
You have to manage the funds: If an employee leaves the organization, you will calculate the amount as per Gratuity Payment Rules. This has nothing to do with the amount of actuary valuation done by the actuary. Actuarial valuation is only a provision under the act for payment of funds from the company account to the Gratuity Fund Account. This cannot be reversed.
Now you will calculate the amount due to the employee Rs........... Now you will look for the amount in the current account Rs.............. If this amount is sufficient to pay to the employee, then you will give a check for the amount due to him and take a payment voucher under XYZ COMPANY LTD.-GRATUITY FUND ACCOUNT.
If there is a shortage of funds, then you first transfer some amount from the company account to the Gratuity Fund and then pay the due amount to the employee.
At the year-end, you will remove the employee's name from the list altogether. No need to show his name at all. Thereby, the new provision will be available from the actuary.
At the year-end: Then now look into your as of date: (what is actually available) List of Investments: Rs............... Add: Interest Received Rs................ Balance in the GF-Current Account Rs............... Total of all the above. Rs............... New Provision as per the list Rs............... The difference will be now further transferred to the Gratuity Fund Account.
Like companies' accounts are audited, the audit of the Gratuity Fund Account is also to be done, and an audit certificate is to be obtained.
Gratuity Fund is an independent entity, and every action, investment, etc., are to be minuted in the minutes of the meeting of trustees of the fund, and a resolution is to be passed.
Authorized signatories for investment and bank accounts are to be made with any two trustees signing the documents and operating the bank accounts and investment funds.
Payment to an employee is also to be resolved in the meeting, and a copy kept in records with the proper signatory of trustees.
The main issue is the Gratuity Fund is a separate account, and these funds cannot be misused. Close monitoring of the investments and getting the interest warrants and follow-up if not received. Change in trustees due to retirement, death, and other reasons to be minuted and change of authorized trustees to be circulated and recorded for all investments wherever necessary.
Regards,
Ramakrishnan Sarma