As per guidelines of The Payment of
Gratuity Act 1972 (Amended) gratuity is a statutory obligation on the
shoulders of the employer to make the payment of Gratuity within 30 days
to his employees as soon as it becomes payable. (Refer Sub Section (2) of
Section 7 to the Act).
Compliance of this act is applicable to all
organizations such as a factory, mine, oilfield, port, railways,
plantation, shops, establishments or Educational institution having
10 or more employees on any day in the preceding 12.
The amount of Gratuity payable to an employee on
his exit from service, according to “The Payment of Gratuity
(Amendment) Act 2018 ”, in force at present, is:-
(Wages of the employee at the time of
exit) x (15/26) x (Number of Years of Service at the time of exit)
This is subject to a ceiling limit of 20,00,000/-
effective from 29.03.2018. The Gratuity Ceiling Limit can be raised by the
employer to give additional benefits to his employees.
Gratuity is payable to an employee on exit from service
after he has rendered continuous service for not less than five years:
(b) On his resignation
(c) On his death or disablement due to injury or disease.
In the case of (c) vesting condition of 5 years does not apply.
Gratuity Benefits depends upon last drawn monthly wages and
is linked to the length of service, normally it goes on increasing from the
time when the employee joins service and the time of his exit from service due
to the annual increase in salary and increasing service period.
If Mr. A at Age 48, joins the Company where
retirement Age is 60 yrs. with a Basic Pay of Rs. 2,60,000/- per month
and there is an annual increment of 10% in his wages, then Gratuity Payment after 5 years and on *retirement will be:-
Completion of 1 Yr - (15/26)* 2,86,000*1 = 1,50,000/-
On Completion of 2 Yrs - (15/26)*3,14,600*2 = 3,63,000/-
On Completion of 3 Yrs - (15/26)*3,46,060*3 = 5,98,950/-
On Completion of 4 Yrs - (15/26)*3,80,670*4 = 8,78,460/-
On Completion of 5 Yrs - (15/26)*4,18,730*5 = 12,00,788/-
Completion of 12 Yrs - (15/26)*8,15,991*12 = 56,49,198/-*
Due to regulatory requirement and Nature of Gratuity Liability which increase exponentially
with the increase in wages of employee and service period of the employee. It becomes mandatory for companies to create a separate corpus for discharging the Gratuity
Liability in future. In Indian context, Companies have 2 options for discharging the Gratuity Liability : -
as go options – In this option, the employer
makes provision of Gratuity Liability by taking an Actuarial Valuation Report/
Certificate from An Actuarial Service provider in Compliance
of AS 15 (Revised 2005) in their Financial Statement and whenever
an employee leaves the organization, the employer pays him gratuity from his
Option – In this option, the
Employer Forms an Irrevocable Trust and gets the approval from Income Tax
Department and contribute funds into the Gratuity Trust annually and get tax
benefits section 36 (1) (v) of the income tax act, 1961 and as and
when an employee leaves the organization, gratuity amount paid by the gratuity
We offer our Advisory and Support Services to organisation for :-
1. Gratuity Trust Formation.
2. Gratuity Trust Investment in Group Gratuity
Group Gratuity Schemes of LIC.
(b) Unit Linked Gratuity Schemes of all Private Insurance Companies.
3. Accounting/Audit of Gratuity Trust
4. Legal Support Services for Gratuity Trust Formation.
Specialized Consulting Support Services for Registered Valuer's valuations:-
Valuations under Gratuity & Leave Encashment plan - For compliance
of AS 15(R)
(b) Plant and Machinery Valuations- For compliance of AS 10
(c) Land and Building Valuations- For compliance of AS 10
(d) Securities or Financial Assets Valuations- For Compliance
of Section 42 of Companies Act
(e) Merchant Banker Valuations - For Compliance of
Section 42 & 62(i)(c) of Companies Act
6. Gratuity & Leave Policy Restructuring as Employee Retention Policy.
7. Investment in Immediate & Deferred Annuities as retention benefit for
highly productive employees or as a Retirement Benefit for CFO, Top Management Directors
8. Group, General, Health insurances such as Marine
Insurances, EAR Insurance, Corporate Property, Fire Insurances, etc.
9. Investment in Indian and Overseas Properties (i.e. Dubai).
In case you or your clients have a requirement for the above
serviced then you may contact me.
Gratuity Trust Fund Consultant
Office Address: R 11, F/F, R Block, Vikas Nagar, New Delhi
Mobile Number: 9211637063
(All Consultancy Services provided by us are subject to terms
& conditions will be stated when a consultation job is accepted.)