Hi , can anyone please tel me, How the gratuity is insured by LIC & Paid by LIC IS it mandatory? Pravin Joshi
From India, Pune
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2From India, Pune
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Hi,
Here is the Gratuity Scheme of LIC from the site [link no longer exists - removed]. See this site for more information.
Under the Payment of Gratuity Act, 1972, it is the employer's statutory liability to pay 15 days' salary (15/26 of a month's wages) for every completed year of service to each of their employees upon their exit, for any reason, after five years of continuous service, subject to a maximum limit of 3.5 lakhs. Higher benefits can be paid if the employer desires. Gratuity payable to employees can be paid when the liability arises and can be claimed as a deductible expense under the P&L account of the relevant financial years. However, sound financial management envisages providing for Gratuity liability every year and claiming the tax benefits as it is mandatory to account for the liability on an actual basis as per Accounting Standards 15 (AS15). This can be achieved by creating a Trust, managed privately or by LIC, and paying the amount to the Trust annually. In the case of a Privately Managed Trust, investment of funds must comply with the Income-Tax Act, and the administration, including Actuarial Valuation, is the responsibility of the Trustees. In the case of an LIC-managed trust, investment and actuarial valuation are handled by the corporation at no cost, and interest is paid by the Corporation on the accumulated funds.
LIC provides the details on how the Group Gratuity (Cash Accumulation) Scheme offers a convenient mode of funding the statutory obligation of an employer under the Payment of Gratuity Act:
ATTRACTIVE RETURN:
LIC offers a very attractive rate of interest depending on the size of the fund.
Employers' ordinary annual contribution is fully deductible in computing business income as per Section 36(1)(v).
Employer's initial contribution.
No limit on the amount as per Rule 104.
It is to be paid in full on the date of setting up the fund or in five yearly equated installments from that date.
The deduction allowed shall not exceed 8 1/3% of the past salaries as per Rule 104.
Benefits to Employees Employers' initial and ordinary annual contributions are not considered taxable perquisites.
Gratuity is payable in lump sum only as per Rule 3 of part C of Schedule IV.
Gratuity is considered salary and hence taxable, taxed under Sec. 17(i)(iii).
Gratuity is tax-free up to half a month's average salary (of the last 10 months) for each year of service, subject to a maximum of Rs. 3.5 lakhs as per Sec. 10(10).
When computing tax on gratuity, relief of spreading back is available as per Sec. 89(1).
Multi-Employer groups are not allowed as per CBDT letter addressed to LIC.
The above scheme, as attractive as it is, can be integrated into the overall commitment of any progressive employer dedicated to the concept of Human Resource Development.
Regards,
Hemant Sailor
From India, New Delhi
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Here is the Gratuity Scheme of LIC from the site [link no longer exists - removed]. See this site for more information.
Under the Payment of Gratuity Act, 1972, it is the employer's statutory liability to pay 15 days' salary (15/26 of a month's wages) for every completed year of service to each of their employees upon their exit, for any reason, after five years of continuous service, subject to a maximum limit of 3.5 lakhs. Higher benefits can be paid if the employer desires. Gratuity payable to employees can be paid when the liability arises and can be claimed as a deductible expense under the P&L account of the relevant financial years. However, sound financial management envisages providing for Gratuity liability every year and claiming the tax benefits as it is mandatory to account for the liability on an actual basis as per Accounting Standards 15 (AS15). This can be achieved by creating a Trust, managed privately or by LIC, and paying the amount to the Trust annually. In the case of a Privately Managed Trust, investment of funds must comply with the Income-Tax Act, and the administration, including Actuarial Valuation, is the responsibility of the Trustees. In the case of an LIC-managed trust, investment and actuarial valuation are handled by the corporation at no cost, and interest is paid by the Corporation on the accumulated funds.
LIC provides the details on how the Group Gratuity (Cash Accumulation) Scheme offers a convenient mode of funding the statutory obligation of an employer under the Payment of Gratuity Act:
ATTRACTIVE RETURN:
LIC offers a very attractive rate of interest depending on the size of the fund.
Employers' ordinary annual contribution is fully deductible in computing business income as per Section 36(1)(v).
Employer's initial contribution.
No limit on the amount as per Rule 104.
It is to be paid in full on the date of setting up the fund or in five yearly equated installments from that date.
The deduction allowed shall not exceed 8 1/3% of the past salaries as per Rule 104.
Benefits to Employees Employers' initial and ordinary annual contributions are not considered taxable perquisites.
Gratuity is payable in lump sum only as per Rule 3 of part C of Schedule IV.
Gratuity is considered salary and hence taxable, taxed under Sec. 17(i)(iii).
Gratuity is tax-free up to half a month's average salary (of the last 10 months) for each year of service, subject to a maximum of Rs. 3.5 lakhs as per Sec. 10(10).
When computing tax on gratuity, relief of spreading back is available as per Sec. 89(1).
Multi-Employer groups are not allowed as per CBDT letter addressed to LIC.
The above scheme, as attractive as it is, can be integrated into the overall commitment of any progressive employer dedicated to the concept of Human Resource Development.
Regards,
Hemant Sailor
From India, New Delhi
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Dear Pravin,
Payment of gratuity for eligible candidates (those who have completed continuous 5 years) is mandatory. However, the Payment of Bonus Act 1972 never insists that it should be through LIC.
Section 4A enables an employer to obtain insurance in the prescribed manner for their liability for payment under the Act from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act 1956 or any other prescribed insurer.
Nasir Ali
From India, Thiruvananthapuram
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Payment of gratuity for eligible candidates (those who have completed continuous 5 years) is mandatory. However, the Payment of Bonus Act 1972 never insists that it should be through LIC.
Section 4A enables an employer to obtain insurance in the prescribed manner for their liability for payment under the Act from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act 1956 or any other prescribed insurer.
Nasir Ali
From India, Thiruvananthapuram
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is it necessory to run a trust if you wish to mantain and gratuity fund by lic hi please reply Reagards, Shishpal
From India, Noida
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From India, Noida
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