Is Compulsory Gratuity Insurance Under Section 4A Applicable in Gujarat? Let's Discuss

Is Section 4(A) of the Payment of Gratuity Act 1972, which is compulsory insurance, applicable in the state of Gujarat? Kindly shed light on this.

Many states are yet to notify this section of the Payment of Gratuity Act. You may contact the Labour Officer for details.

Dear Madhu TK Sir,

If the company is deducting the gratuity amount from the CTC of the employees, does the company need to invest the same in a gratuity fund or gratuity insurance, or can the company just transfer the deducted gratuity amount to the provision for gratuity?

What will be the accounting treatment for the amount deducted?

Thank you

What is the relevance of "deducting" gratuity amount from the CTC? The CTC itself is wrong. You should take the salary out of it and see if there is any deduction by way of gratuity. There will not be any deduction towards gratuity.

Gratuity Fund Provision Now coming to the point of discussion, every employer is expected to create/provide for a gratuity fund as per the Accounting Standards. Your accountant will not finalize your Profit and Loss account and Balance sheet without providing for gratuity liability, and that provision will be made after an actuarial valuation. This is done by taking into account the age of employees, their retirement date, and the probable number of employees who are expected to leave the company in the next year, etc. By making this provision, the company will be able to pay gratuity without depleting their working capital.

Investment of Gratuity Fund If your state has not made it mandatory to invest the said fund with LIC, then you can keep it as such under a separate trust fund.

As per my information, Section 4A has only been notified in the State of Andhra Pradesh and remains unnotified for the rest of India till the year 2019.

Understanding CTC

The CTC doesn't mean the amount receivable by the employee, rather it is an indicative cost of each employee for the employer.