Gratuity Deductions from Monthly CTC: How Should Companies Handle Accounting and Investments?

Gratuity Deduction from Monthly CTC

1) If the company is deducting the amount of gratuity from the monthly CTC of the employees, what will be the accounting treatment of the same?

2) Does the company need to transfer/invest the deducted amount to the Gratuity Fund or Gratuity Insurance premium?

3) Can the company just deduct the amount and not show it in the Books of Accounts?

4) Does the company create a provision for gratuity at the time of closing the books based on the number of employees and their completed job periods?

Processing Payroll from Monthly CTC

Processing payroll from monthly CTC is not the right process. It should be from the monthly gross as CTC has no legal standing. Monthly gross typically consists of Basic, DA (if any), HRA, and other allowances paid on a monthly basis.

Gratuity in CTC

Gratuity may be part of CTC, and there is no harm in that. If gratuity is included in the monthly CTC structure as earnings, it should also be reflected on the deduction side as it is not an item payable on a monthly basis. The deducted gratuity amount should either be kept in a gratuity fund maintained by the organization or deposited with an insurance company if there is an agreement with insurance.

Regards, S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To Strive towards excellence with effort and integrity