Curious About Group Gratuity, Accident, and Medical Schemes? Let's Dive Into the Details Together

Hi All,

Greetings! I would like to know the full details of Group Gratuity Scheme, Group Accident Scheme, and Group Medical Scheme.

Kanaka

Dear Kanaka,

Answer to your queries is as under:

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

Under the above, a trust is required to be established by the employer for the purpose of managing the gratuity funds. The trust will create a fund with the LIC against the payment of gratuity. Contributions towards the fund are generally intimated by LIC to the trust on an annual basis. This calculation is based on an actuarial basis. The other part is the insurance of the fund. The trust will deal with the LIC for the 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 an annual basis.

The benefit to the employer is that the contributions paid by the employer to the gratuity trust will be recognized as expenses for the year in the balance sheet even though these are to be utilized in the future. Furthermore, in case a big number of employees leave the organization at one time, the financial burden on the employer 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 the annual premium.

Another significant benefit is that in the case of the death of an employee during the course of employment, the nominee will receive the gratuity amount not only for the period of rendered services but until the date of retirement. This part is taken care of by LIC against the insurance premium paid by the employer.

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

This trust is also required to be recognized by the Income Tax Authorities. This part is taken care of 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 organization. In these policies, in case of an accident when an employee is recommended for bed rest by the doctor, this insurance coverage takes care of the loss of salary to the employee and also to an extent of medical bills. The second part is again a part of the policy to be taken care of by the employer while paying the premium. Payments under these policies to employees are on a weekly basis and a lump sum payment in case of permanent disablement as per the schedule and full insurance payment in case of death.

Group Mediclaim policies: These are policies floated by insurance companies for the protection of employees against the list of diseases insured by the insurance company. These cater towards the payment of hospitalization charges, including fees of consultants or surgeons, medical procedures, and medicine purchases. These policies cover reimbursement of pre and post-hospitalization expenses borne by the individual.

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

I hope this gives you an idea of the subject.

Anil Anand

Can I get a comparison study between LIC's Group Gratuity Scheme (GGCA) and others' gratuity schemes?

Siyad P.I

Dear Sir,

Thank you for your valuable information. You have mentioned that we need to register under the IT Act. This trust is created solely for the purpose of employees and their benefits. There will not be any other transactions. How can we file a return if we register under the IT Act?

Please also inform me if there will be any difficulties for the company after creating the trust account.

Thanks & Regards,
Sridevi

LIC Group Gratuity Scheme

What is the nature of this scheme?

The LIC Group Gratuity Scheme, also known as the Cash Accumulation Scheme, is a plan 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 fulfill their obligation at a higher level.

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

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

What are the attractive returns of this scheme?

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

Considering the initial contribution made by the employer, under Rule 104, there is no limit on the amount. The initial amount must be paid either in full or equally divided into 5-year installments from the date the funds are set up.

Additionally, under the LIC Group Gratuity Scheme, as per Rule 104, permitted deductions should not exceed 8 1/3% of past salaries.

What is the minimum number of employees that can be covered under the gratuity scheme in an establishment.

---

The minimum number of employees that can be covered under the gratuity scheme in an establishment varies depending on the local regulations. In some regions, there may be a requirement for a minimum number of employees, such as five or more, for the gratuity scheme to be applicable. It is essential for employers to familiarize themselves with the specific laws and regulations governing gratuity in their jurisdiction to ensure compliance and provide the necessary benefits to their employees.

Maximum gratuity payable under the act has been changed from $350,000 to $100,000. I am not sure if it has been officially approved.

Can anyone send the LIC Group Gratuity Formula for calculating the premium?