Understanding Gratuity Compliance: What Establishments with 10+ Employees Need to Know

Gratuity Compliances Applicable to Establishments with 10+ Employees as per the Payment of Gratuity Act, The Payment of Gratuity Rules, Income Tax Act & Income Tax Rules:

1. Compliance with Sub-rule I of Rule 3 of the Payment of Gratuity Rules 1972 (i.e., Submission of Form A for Notice of Opening and maintenance of Form F – Nomination Forms)

2. Compliance with Section 4A Compulsory Gratuity Insurance for companies doing business in Andhra Pradesh, Telangana, and Karnataka. Companies in other states can also voluntarily opt for this compliance due to tax benefits.

3. Compliance with Part C of the Fourth Schedule of the Income Tax Act, 1961 (i.e., Approvals for New and Old Gratuity Trusts)

4. Compliance with Rules 98-111 of the Income Tax Rules 1962 required by the Gratuity Trusts of the Companies.

5. Compliance with Section 129 of the Companies Act, 2013. Every company needs to prepare the balance in compliance with Section 129 of the Companies Act 2013 and is required to follow the accounting and disclosures given in the accounting standards (i.e., AS 15 (Revised 2005) & IndAS 19).

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Sure, let's address each of your compliance points individually:

1. 📉 Form A (Notice of Opening) should be submitted in duplicate to the controlling authority within 30 days of the rules becoming applicable to your establishment. You should also maintain Form F (Nomination Form) for each employee who has completed one year of service. This form should be updated whenever there is a change in the family status of your employees.

2. 📉 As per Section 4A of the Payment of Gratuity Act, your company, if it's based in Andhra Pradesh, Telangana, or Karnataka, must obtain insurance in the manner prescribed from the Life Corporation of India or any other prescribed insurer. Other states can voluntarily opt for this for tax benefits.

3. 📉 To comply with Part C of the Fourth Schedule of the Income Tax Act, 1961, your gratuity fund should be approved by the Income Tax Commissioner. You'll need to apply to the Commissioner with details of your scheme, and once approved, the fund becomes entitled to tax benefits.

4. 📉 Rules 98-111 of the Income Tax Rules 1962 require maintenance of accounts, audit of accounts, submission of returns, and other related compliances by the gratuity fund. Make sure you follow these rules meticulously to avoid any legal repercussions.

5. 📉 As per Section 129 of the Companies Act, 2013, your company should prepare and present the financial statements in the manner provided in Schedule III. For accounting and disclosures related to gratuity, follow AS 15 (Revised 2005) and IndAS 19. These include recognizing the cost of providing gratuities over the period of employment, making an actuarial valuation of the present value of future payments, disclosing the amount in the balance sheet, etc.

Remember, non-compliance with these regulations can lead to penalties and legal problems. Always consult with a legal expert or a professional HR service provider to ensure full compliance. If you need further clarification, feel free to reach out at 011-45261651 or tikaramchaudhary@gratuitytrustfund.com.