Gratuity Not Accounted for Long-term Employee: Could This Cause Issues?

We would like to inquire if there would be any issues if an employee has been working for the past 5 years and 3 months until 31.03.2014 and is still continuing to work. This information has not been included in the provision for gratuity. Therefore, could you please advise if there might be any problems? The company's balance sheet has been prepared and submitted for income tax purposes.

Thank you.

Regards

Section 4 of the Act mentions the obligation of an employer of an establishment to consider the case of each employee in the matter of payment of gratuity to him. The employer shall arrange to pay the amount of gratuity within 30 days from the date it becomes payable to the person to whom the gratuity is payable. If the amount of gratuity payable under the section is not paid by the employer within the specified period, from the date on which the gratuity becomes payable, he will have to pay simple interest on it at a rate not exceeding the rate notified by the Central Government from time to time. This will be considered a delay in payment if it has crossed 30 days from the date of the application made by the employee and provision made by the employer.

Dear Sir, I know that, but the question is when we did not make a provision for gratuity in the last year for one person, but we will make it in the current year. So, what is the obligation? Regards,

As per "Accounting Standard (AS-15) Employees Benefits" issued by the ICAI, every employer/assessee has to make a provision (mandatory) in their Annual Accounts towards gratuity for their employees using the "Actuarial" valuation method for those who have become eligible for gratuity under the Gratuity Act or any other applicable scheme. This provision is claimed as a deduction for expenses for the respective year for computing the employer's income tax. Failure to do so will result in disallowance in the future.

However, in your case, your firm has omitted one employee's provision for making a provision in the accounts, possibly due to oversight. You have not mentioned for which year this provision pertains to. Presumably, it should be for an incremental liability for the Financial year 2013-14, for which your firm might have recently filed the income tax return. I don't think this is a significant mistake to worry much about. If you are very concerned, discuss with your auditors. You might also consider filing a revised return since I am sure the assessment of the income tax return for 2013-14 is not yet completed. Even if the assessment is over, don't worry; ensure it is covered for the next year by making a fresh provision either under "Prior Period Expense" or under the Major Head Employees Benefits as the case may be.

We would like to know if an employee has been working for the past 5 years and 3 months up to 31.03.2014 and continues to work till date, but this duration has not been mentioned in the provision of gratuity. Is there any problem because the company's balance sheet has been prepared and submitted to the income tax department?

There is no problem since the employee is still continuing with you; if the employee leaves this year, you can make the payment and account for it on an actual basis. If the employee continues into the next year, you can make a provision on an actuarial basis. Please consult your Chartered Accountant for guidance.

Thank you.