Dear All Friends,
Can you please confirm whether, as an employer, we can pay the due gratuity amount to the employee without enrolling ourselves for the LIC - Gratuity Schemes? We have calculated the amount based on the gratuity rule. Can we directly pay this amount in the FAFS - Full & final Settlement of that employee?
From India, Mumbai
Acknowledge(0)
Amend(0)
7Can you please confirm whether, as an employer, we can pay the due gratuity amount to the employee without enrolling ourselves for the LIC - Gratuity Schemes? We have calculated the amount based on the gratuity rule. Can we directly pay this amount in the FAFS - Full & final Settlement of that employee?
From India, Mumbai
Acknowledge(0)Amend(0)
As far as I know, the Gratuity scheme with LIC is an investment scheme for the accumulated Gratuity fund of the employee/s. The company diverts its liability of handling the fund and operations in various scenarios.
Going with LIC will provide the following benefits:
- Readily available funds.
- This is a non-market-linked scheme, so the fund will be available even if the market is up or down.
- Gratuity fund is treated as a business expense under Sec(36) of the Income Tax Act; therefore, there is a 100% rebate as well as 33% tax saving.
- Also, interest up to 8-9% is earned by the employee if the scheme is installed under LIC. There is no financial implication if diverted towards LIC; only funding has to be done as per actuarial valuation done by them.
Even if the fund can be managed by the company itself, then the above benefits would be out of the picture. Therefore, most of the companies try to invest the idle fund lying with them.
Regards,
Parul Gupta
From India, Pune
Acknowledge(0)Amend(0)
Going with LIC will provide the following benefits:
- Readily available funds.
- This is a non-market-linked scheme, so the fund will be available even if the market is up or down.
- Gratuity fund is treated as a business expense under Sec(36) of the Income Tax Act; therefore, there is a 100% rebate as well as 33% tax saving.
- Also, interest up to 8-9% is earned by the employee if the scheme is installed under LIC. There is no financial implication if diverted towards LIC; only funding has to be done as per actuarial valuation done by them.
Even if the fund can be managed by the company itself, then the above benefits would be out of the picture. Therefore, most of the companies try to invest the idle fund lying with them.
Regards,
Parul Gupta
From India, Pune
Acknowledge(0)Amend(0)
Yes, as an employer, you can pay gratuity without getting yourself enrolled with LIC. The catch is that if you don't have the LIC policy (or from any other insurer), then you will have to pay from your own normal business expenses as and when people leave your firm.
Companies usually choose one of the two options after carefully weighing the pros and cons. Just to let you know, both options are still eligible for favorable tax treatment and savings.
Thanks,
Ravi Shekhar, CFA
From India, Delhi
Acknowledge(0)Amend(0)
Companies usually choose one of the two options after carefully weighing the pros and cons. Just to let you know, both options are still eligible for favorable tax treatment and savings.
Thanks,
Ravi Shekhar, CFA
From India, Delhi
Acknowledge(0)Amend(0)
Dear friend,
Absolutely no problem if you pay the gratuity to your retired employees or nominees of the expired employees from your own resources. The LIC or other insurance companies simply take over your responsibility for the promotion of their business. If you find the gratuity payment from your funds more economical than through some insurance company, nothing prevents you from doing so. Only consult your finance people and make sure that your option is in the best interest of your company. Once you pay the gratuity, you are fully complying with the law. The law-enforcing machinery will not ask you anything in the matter.
With regards,
Sincerely, Shyam Agrawal
From India, Pune
Acknowledge(0)Amend(0)
Absolutely no problem if you pay the gratuity to your retired employees or nominees of the expired employees from your own resources. The LIC or other insurance companies simply take over your responsibility for the promotion of their business. If you find the gratuity payment from your funds more economical than through some insurance company, nothing prevents you from doing so. Only consult your finance people and make sure that your option is in the best interest of your company. Once you pay the gratuity, you are fully complying with the law. The law-enforcing machinery will not ask you anything in the matter.
With regards,
Sincerely, Shyam Agrawal
From India, Pune
Acknowledge(0)Amend(0)
Hi Mr. Parul Gupta,
It was clearly stated that your investment with LIC is an investment. Therefore, you have to pay either by yourself or through LIC. In any case, it is your responsibility, and you cannot refuse this.
Best wishes to Mr. P. Gupta.
Ravi Shankar S.
From India, Madras
Acknowledge(0)Amend(0)
It was clearly stated that your investment with LIC is an investment. Therefore, you have to pay either by yourself or through LIC. In any case, it is your responsibility, and you cannot refuse this.
Best wishes to Mr. P. Gupta.
Ravi Shankar S.
From India, Madras
Acknowledge(0)Amend(0)
Gratuity is paid to an employee once after the completion of 5 years of service, calculated based on the last month's salary drawn. It is calculated as follows: Last Salary (Basic + DA) / 26 (Number of working days) * 15 (Half the month) * number of years of service completed. More than 6 months is considered as one year.
From India, Bangalore
Acknowledge(0)Amend(0)
From India, Bangalore
Acknowledge(0)Amend(0)
Dear Friend,
As Parul rightly elaborated on the fact about Gratuity Payment, I would like to add that the Payment of Gratuity Act does not mandate any such compulsion. It only directs that the employer shall opt for LIC or any other Insurance Provider. Best of luck to you and Parul.
Regards,
Shekhar
From India, Pune
Acknowledge(0)Amend(0)
As Parul rightly elaborated on the fact about Gratuity Payment, I would like to add that the Payment of Gratuity Act does not mandate any such compulsion. It only directs that the employer shall opt for LIC or any other Insurance Provider. Best of luck to you and Parul.
Regards,
Shekhar
From India, Pune
Acknowledge(0)Amend(0)CiteHR is an AI-augmented HR knowledge and collaboration platform, enabling HR professionals to solve real-world challenges, validate decisions, and stay ahead through collective intelligence and machine-enhanced guidance. Join Our Platform.
Payment of Gratuity Act, 1972 & The Rules.ppt
THE PAYMENT OF GRATUITY ACT 1972.doc