Benefits of Group Gratuity Trust Fund by

Companies.
& History of Amendments in the Payment
of Gratuity Act , 1972
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This is post is an attempt to give a brief about Gratuity Liability,
Gratuity Act 1972 amendments and benefits of creating Group Gratuity
Trust Fund with Insurers by Companies having more than 10 employees
and having 5 years or more years of Business Operations.

What is Gratuity?

When employee leave the service, employer rewards him for his
accrued service in the organization. He does so by giving you a free
lump sum of cash - called gratuity in financial parlance - on your exit.
The amount that employer gives is based on the number of years of
service employee have put into the organization.

As per Gazette notification issued by Ministry of Law & Justice in The

Gazette of India on dated 29th March 2018 as applicable WEF same
date amends the Ceiling Limit from "ten lakh rupees" to "such amount
may be notified by the Central Government from time to time" is
substituted. A pdf copy of same is available at following weblink :-
http://egazette.nic.in/WriteReadData/2018/184298.pdf

When Employee is entitled for Gratuity?

Gratuity in earlier days was rather arbitrary and completely hostage to

the whims of the employer. A wealthy, well-established employer would
reward his dedicated employees and the not so rich would refuse such
generosities. This led to a lot of discord and finally the government
stepped in, passing the Payment of Gratuity Act, 1972, making it
mandatory for all employers with more than 10 employees to give them
gratuity. Employees, as defined here, are the ones hired on company
payrolls. Trainees are not eligible and gratuity is paid on the basis of
the employee's basic plus dearness allowance if any.

How much can employee get?

Employee become entitled to a gratuity on resignation or on retirement

after five years# or more of service. As per the Act, the gratuity amount
is 15 days' wages multiplied by the number of years put in by you. Here
wage means your basic plus dearness allowance. Take the monthly
salary drawn by you last (basic plus dearness allowance) on
resignation or retirement and divide it by 26, assuming there are four
Sundays in a month. This is your daily salary. Multiply this amount by 15
days and further with the number of years you have put into service.

History of amendments in Gratuity Act ?

Gratuity benefit is usually payable at the time of retirement. Since, at

the time of retirement employee generally has no source of regular
income and due to old age- increasing medical expenses and
increasing inflation to meet with day to day expenses. So to cope up
with all these uncertainties, Gratuity Payment becomes a financial
support to meet necessary expense as a single one time payment. The
rules and regulations being prescribed in Gratuity Act 1972 need to be
amended time to time and labour ministry tries to provide full justice
by making amendments to the above act, in the national Parliament.
Some of the amendments in the Payment of Gratuity Act 1972 are as
follows:-

The first amendment made by the Payment of Gratuity (Amendment)

Act, 1984 inter alia provides for raising the wage limit for coverage
from Rs 1000/- to Rs 1600/- per month and appointment of Inspectors.

The second amendment made by the Payment of Gratuity (Second

Amendment) Act, 1984 inter alia re-defined the term ‘continuous
service’ and provided for grant of exemption to a class of employees
from the operation of the Act.

The third amendment made by the Payment of Gratuity (Amendment)

Act, 1987 inter alia provided for:-

(a) Raising the wage limit for coverage from Rs 1,600/- to Rs 2,500/- per
month, which was further raised to Rs 3,500/- p.m. .

(b) Replacing the ceiling of twenty month’s wages for payment of

gratuity by a monetary ceiling of Rs 50,000/-

(c) Making it obligatory for the employers to pay simple interest at a

specified rate if the gratuity is not paid within 30 days from the date it
falls due.

(d) Compulsory insurance/setting of gratuity fund for payment of

gratuity.

In later amendments wage limit was removed all together and ceiling
limit was revised from time to time. Ceiling limit was raised to Rs
100,000 from Rs 50,000 in 1994 and further raised to Rs. 3,50,000 in
1997. It was increased to Rs. 10,00,000 in 2010 and As per Gazette
notification issued by Ministry of Law & Justice in The Gazette of India
on dated 29th March 2018 as applicable WEF same date amends the
Ceiling Limit from "ten lakh rupees" to "such amount may be notified by
the Central Government from time to time" is substituted.

Why Creation of Group Gratuity Trust Fund is Beneficial for Employer ?

Normally Group Gratuity funds of the trust can either be invested by

the trustees or alternatively the funds may be let out to LIC who will
then invest & give a specified return on the trust fund. The
administrative work of the trust however is the responsibility of the
trustees. Companies prefer to create LIC managed Trust Fund to focus
on their core business.

In case of LIC managed funds of the trust, companies will get following
benefits :-

(i) The job of investment and interest is paid by the Corporation on the
accumulated funds.

(ii) In case of death while in service, the service period is counted

while calculating the gratuity as if the person has served the company
up to his Normal Retirement Date.

(iii) LIC maintains the fund under the name of trust.

(iv) Investment of funds is taken care by LIC & Interest is declared as

per the performance of Total Fund and credited to the individual trust
fund.

(v) At the time of exit of employee, trustee send discharge and advice
LIC to make payment of Gratuity as per Scheme to the Trust.

(vi) Tax benefits are as per the provisions of the Income Tax Act, 1961.
Such as Contribution to LIC are treated as business expenses to the
company and Interest earning are Tax Free. (Tax laws are subject to
change.)

The above tax benefit as stated in (vi) above is not available to the
companies who make the accounting provision of Gratuity in their
Balance Sheet as per the provisions of Accounting Standard-15
(Revised 2005) and IndAS 19.

In case you have any requirement to creating Group Gratuity Trust

Fund with Insurance Company, then you may contact me at the
following :-
Tikaram Chaudhary
Gratuity Trust Fund Consultant
R-11. F/F, Vikas Nagar, Uttam Nagar, New Delhi - 110059
9211637063
Email ID - gratuityconsultant@gmail.com
Blog- www.gratuityconsultant.blogspot.com
Mobile Number - 9211637063