Dear Mr.Rajat
My views differs with respect to non consideration of Gratuity as a part of CTC.
I agree that if employee leave service prior to eligibility period , this amount will not be given to him but once the Payment of Gratuity Act,1972 became applicable on establishment / factory then employer is bound to comply with the statutory provisions as applicable.
Section 4A of the payment of Gratuity Act,1972 makes insurance of gratuity mandatory for employers. Subsection 2 of Section 4A says employer has to obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer.
To comply with this provision every employer has to create a trust who
deals with LIC on behalf of employer. Trust creates a gratuity fund with the help of LIC. LIC keeps the fund and pays interest on the balance. In fact LIC here acts like a bank. Investment made by employer towards the gratuity fund are accepted by I Tax authorities as expenses for the financial year in which the contributions are being paid by employer. Though these payments are to be made to eligible employees in future but with the creation of fund duly recognised by I Tax authorities as forwarded by LIC , are taken as expenses for current financial year by I Tax Authorities.
So when expenses which are actually due in future and employer is discharging the future liability in current under the statutory provisions then there is no harm in considering gratuity as a component to CTC.
Once the employer has paid contribution towards the gratuity fund and also has paid insurance premium to LIC that means he has incurred the expenses on employee.
Now comes the question, if, employee leave service prior to eligibility period. In this case even employer will not get the benefit of refund but certainly he has to pay less contribution for next year and again if a big number of employees entitled to gratuity leave services during the FY , employer has to immediately pay contributions to replenish the gratuity fund. In no case employer can withdraw money from this fund. The balance if excess is to be settled between the members of the trust as per trust rules , regulations and as per the provisions of Income tax.
Further if , employer do not floow the above provisions, he/she can be penalised for violation of statutory provisions with a fine upto Rs.10000.00 for first offence and Rs.1000.00 per day for every consective offence and I beleive if , employer is aware of such provisions or are made aware of such provisions , compliance is not a big problem and they will discharge there liability as per law of the land.
In view of the above I strongly believe that this gratuity is a component of CTC though it is a reward but is protected by Law.
Regards
Anil Anand