Dear Members,
Kindly let me know, how can a employer manage the gratuity liabilty through Group Gratuity Schemes offered by various insurance companies.
Is gratutity directly paid to employees by the insurance company?
But, if an employee leaves the organisation before 5yrs of service, how is the premium paid by the company refeunded?
Regards
Sandhya Madaan Mahajan
From India, Delhi
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Kindly let me know, how can a employer manage the gratuity liabilty through Group Gratuity Schemes offered by various insurance companies.
Is gratutity directly paid to employees by the insurance company?
But, if an employee leaves the organisation before 5yrs of service, how is the premium paid by the company refeunded?
Regards
Sandhya Madaan Mahajan
From India, Delhi
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Dear Sandhya Madaan Mahajan & Shreekanth,
The Group Gratuity Scheme operates this way
1. The company enters into a formal agreement with the LIC of India and forms a Gratuity Scheme.
2. The scheme is called in the company's name.
3. The company submits a list of employees, Date of Birth, Date of Joining & Basic wages + DA to LIC.
4. LIC computes the Gratuity Liability of the company and requests the company to deposit the amount to LIC. This amount attracts interest at the rates announced by LIC of India.
5. Upon receiving the resignation letter from an employee, eligible to receive Gratuity the company submits a claim form to LIC in specified format claiming the Gratuity amount from the Fund. LIC cross verifies the details and forwards the cheque to the Gratuity scheme (EMPLOYER). The employer in turn releases the cheque to the employee. LIC does not pay directly to the EMPLOYEE.
6. Every year LIC makes an actuarial valuation of the fund available based on the employee inputs given year after year by the employer and advises the employer to match the fund requirement.
7. But if the fund availability is below the liability and the employer does not pay matching contributions LIC will restrict the Gratuity amount to the extent of fund available.
8. The important feature of this scheme is by paying a marginal risk premium LIC pays Gratuity to an employee (through the employer) who dies whilst in service till his probable date of superannuation. In other words Gratuity will be paid as if he were alive till superannuation. If he dies at the age of 45 years and is eligible to receive gratuity for say 10 years LIC will pay Gratuity for 23 Years (58 Years - 45 Years = 13 Years + 10 Years)
9. The question of refund does not arise as it is a pooled fund and the liability of the employer on any given date is only considered and LIC does not process and make payments to employees directly.
I trust I have explained the matter well.
Regards
M.V.KANNAN
From India, Madras
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291The Group Gratuity Scheme operates this way
1. The company enters into a formal agreement with the LIC of India and forms a Gratuity Scheme.
2. The scheme is called in the company's name.
3. The company submits a list of employees, Date of Birth, Date of Joining & Basic wages + DA to LIC.
4. LIC computes the Gratuity Liability of the company and requests the company to deposit the amount to LIC. This amount attracts interest at the rates announced by LIC of India.
5. Upon receiving the resignation letter from an employee, eligible to receive Gratuity the company submits a claim form to LIC in specified format claiming the Gratuity amount from the Fund. LIC cross verifies the details and forwards the cheque to the Gratuity scheme (EMPLOYER). The employer in turn releases the cheque to the employee. LIC does not pay directly to the EMPLOYEE.
6. Every year LIC makes an actuarial valuation of the fund available based on the employee inputs given year after year by the employer and advises the employer to match the fund requirement.
7. But if the fund availability is below the liability and the employer does not pay matching contributions LIC will restrict the Gratuity amount to the extent of fund available.
8. The important feature of this scheme is by paying a marginal risk premium LIC pays Gratuity to an employee (through the employer) who dies whilst in service till his probable date of superannuation. In other words Gratuity will be paid as if he were alive till superannuation. If he dies at the age of 45 years and is eligible to receive gratuity for say 10 years LIC will pay Gratuity for 23 Years (58 Years - 45 Years = 13 Years + 10 Years)
9. The question of refund does not arise as it is a pooled fund and the liability of the employer on any given date is only considered and LIC does not process and make payments to employees directly.
I trust I have explained the matter well.
Regards
M.V.KANNAN
From India, Madras
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Dear Mr. Kannan, Is it statutory to pay the gratuity amount only in LIC by the company? All companies are paying to LIC only?
From India, Hyderabad
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From India, Hyderabad
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Our Firm Gratuity Trust Fund Consultant is an MSME registered with the Ministry of Micro, Small, and Medium Enterprise with Registration Number UDYAM-DL-11-0013795. Our Consulting Firm is headed by Mr. Tikaram Chaudhary, who has almost 15 years of experience and specialization in providing consultation for Actuarial, Legal, Insurance, and Investment matters related to Old and New Gratuity Trusts as per various provisions of Accounting Standards (i.e., Ind AS 19, AS 15 (Revised 2005), IAS 19 (Revised 2011) & US GAAP ASC 715), Indian Trust Act 1882, The Payment of Gratuity Act, 1972, The Payment of Gratuity Rules, 1973, Income Tax Act 1961, Income Tax Rules, 1962, Fourth Schedule of Income Tax Act, 1961 & relevant Acts/Rules.
Generally, Gratuity Trusts are formed by the most reputed Indian & Multinational Companies as per provisions of in terms of Part C of Fourth Schedule of Income Tax Act, 1961 in irrevocable System for compliance of Section 4A of the Payment of Gratuity Act, 1972 and getting the Tax Benefits available under Section 36 (i) (v) and 10 (25) (iv) of Income Tax Act, 1961.
Gratuity Trust Fund Consultant is a Leading Corporate Consulting Firm served more than 1000 Most Reputed Indian & Multinational Companies with Actuarial Valuation, Legal, Gratuity Insurance and Gratuity Trust Investment Solutions for Employee Benefit (i.e., Gratuity, Leave Encashment, Pension, PRMB etc.).
GTFC is actively involved in providing End to End Consultation for effectively implementing Accounting, Actuarial and Legal compliances of the Payment of Gratuity Act, 1972, The Payment of Gratuity Rules, 1973 & Accounting Standards (AS 15 Revised 2005, Ind AS 19 & IAS 19-IFRS) applicable on Indian & Multinational Establishments. The details of Actuarial, Legal, Insurance and Investment Compliances related to Gratuity Benefits and other Defined Benefits are as under:
1. Gratuity Trust Solutions
The Payment of Gratuity Act, 1972 is applicable to all establishments (i.e. MNC's, Schools, Hospitals, NGO's, Trust's, and other business entities) having more than 10 employees in the past 12 months before the Balance Sheet date. For the purpose of effectively implementing the Payment of Gratuity Act, 1972, the following compliances and penal provisions (i.e. Refer Section 9 in the Payment of Gratuity Act, 1972) are imposed on Establishments by the Competent Authority (i.e., Deputy Labor Commissioner) regulating the Provisions of the Payment of Gratuity Act, 1972:
a. Registration of Establishment (i.e., Submission of Form A - Notice of Opening in DLC Office) b. Maintenance of Records Nominees of Employees in Form F (i.e., For payment of Death Gratuity) c. Maintenance of Records other Forms as prescribed in Rule 3 to 6 of the Payment of Gratuity Rules d. Compulsory Gratuity Insurance - Compulsorily applicable to Indian, US, UK, UAE, Japanese, European, Asian Companies registered with DLC Offices in the jurisdiction of Karnataka, Telangana, and Andhra Pradesh. e. Establishment of the CIT Approved Gratuity Trust for Compulsory Gratuity Insurance. f. Investment of Gratuity Trust Money into Compulsory Gratuity Insurance through Group Gratuity Schemes of Insurance companies such as:
a. SBI Life Insurance Company Limited b. Life Insurance Corporation of India c. Pramerica Life Insurance Limited d. Bajaj Allianz Life Insurance Co. Ltd e. ICICI Prudential Life Insurance Company Limited
g. The Process of Establishment of Gratuity Trust for Compulsory Gratuity Insurance requires Establishment to Involve in the following process: -
I. Vetting of Board Resolution for Gratuity Trust Formation, II. Vetting of Gratuity Trust Deed, III. Vetting of Gratuity Trust Rules & IV. Vetting of Application under Section 9 for Approval from CIT in terms of Rule 109 of Income Tax Rules, 1962
Furthermore, if there is any amendment happened in changes indicated below then Vetting of Deed of Variations and Applications to CIT are required by Trustees/Companies for taking Approvals from CIT for retention of CIT Approval for Gratuity Trust in terms of Part C of Schedule IV of Income Tax Act, 1961 for getting the tax benefits under Section under Section 36 (i) (v) and 10 (25) (iv) of Income Tax Act, 1961 even after the following changes: -
a) Change in Name of Trust, b) Change in Address of Trust, c) Change in Trustees, d) Change in Investment Pattern of Gratuity Funds from 1 Insurer to another e) Change in Benefit Formulae for Gratuity Benefits f) Change in Retirement Age of Employees g) Change in Object of Trust h) Change in Trust Rules i) For winding up of Trust due to winding up of the Company j) For Transfer of Gratuity Fund from one Trust to another in the Event of Merger or De-merger
h. All matter related to Old Gratuity Trusts and Group Gratuity Schemes such as Vetting work of Deed of Variations, Application, Board Resolution, and Application to Bank, LIC & CIT in various events such as Merger, De-merger, Acquisitions etc.
For more details, contact me at 9211637063.
From India, Delhi
Acknowledge(0)Amend(0)
Generally, Gratuity Trusts are formed by the most reputed Indian & Multinational Companies as per provisions of in terms of Part C of Fourth Schedule of Income Tax Act, 1961 in irrevocable System for compliance of Section 4A of the Payment of Gratuity Act, 1972 and getting the Tax Benefits available under Section 36 (i) (v) and 10 (25) (iv) of Income Tax Act, 1961.
Gratuity Trust Fund Consultant is a Leading Corporate Consulting Firm served more than 1000 Most Reputed Indian & Multinational Companies with Actuarial Valuation, Legal, Gratuity Insurance and Gratuity Trust Investment Solutions for Employee Benefit (i.e., Gratuity, Leave Encashment, Pension, PRMB etc.).
GTFC is actively involved in providing End to End Consultation for effectively implementing Accounting, Actuarial and Legal compliances of the Payment of Gratuity Act, 1972, The Payment of Gratuity Rules, 1973 & Accounting Standards (AS 15 Revised 2005, Ind AS 19 & IAS 19-IFRS) applicable on Indian & Multinational Establishments. The details of Actuarial, Legal, Insurance and Investment Compliances related to Gratuity Benefits and other Defined Benefits are as under:
1. Gratuity Trust Solutions
The Payment of Gratuity Act, 1972 is applicable to all establishments (i.e. MNC's, Schools, Hospitals, NGO's, Trust's, and other business entities) having more than 10 employees in the past 12 months before the Balance Sheet date. For the purpose of effectively implementing the Payment of Gratuity Act, 1972, the following compliances and penal provisions (i.e. Refer Section 9 in the Payment of Gratuity Act, 1972) are imposed on Establishments by the Competent Authority (i.e., Deputy Labor Commissioner) regulating the Provisions of the Payment of Gratuity Act, 1972:
a. Registration of Establishment (i.e., Submission of Form A - Notice of Opening in DLC Office) b. Maintenance of Records Nominees of Employees in Form F (i.e., For payment of Death Gratuity) c. Maintenance of Records other Forms as prescribed in Rule 3 to 6 of the Payment of Gratuity Rules d. Compulsory Gratuity Insurance - Compulsorily applicable to Indian, US, UK, UAE, Japanese, European, Asian Companies registered with DLC Offices in the jurisdiction of Karnataka, Telangana, and Andhra Pradesh. e. Establishment of the CIT Approved Gratuity Trust for Compulsory Gratuity Insurance. f. Investment of Gratuity Trust Money into Compulsory Gratuity Insurance through Group Gratuity Schemes of Insurance companies such as:
a. SBI Life Insurance Company Limited b. Life Insurance Corporation of India c. Pramerica Life Insurance Limited d. Bajaj Allianz Life Insurance Co. Ltd e. ICICI Prudential Life Insurance Company Limited
g. The Process of Establishment of Gratuity Trust for Compulsory Gratuity Insurance requires Establishment to Involve in the following process: -
I. Vetting of Board Resolution for Gratuity Trust Formation, II. Vetting of Gratuity Trust Deed, III. Vetting of Gratuity Trust Rules & IV. Vetting of Application under Section 9 for Approval from CIT in terms of Rule 109 of Income Tax Rules, 1962
Furthermore, if there is any amendment happened in changes indicated below then Vetting of Deed of Variations and Applications to CIT are required by Trustees/Companies for taking Approvals from CIT for retention of CIT Approval for Gratuity Trust in terms of Part C of Schedule IV of Income Tax Act, 1961 for getting the tax benefits under Section under Section 36 (i) (v) and 10 (25) (iv) of Income Tax Act, 1961 even after the following changes: -
a) Change in Name of Trust, b) Change in Address of Trust, c) Change in Trustees, d) Change in Investment Pattern of Gratuity Funds from 1 Insurer to another e) Change in Benefit Formulae for Gratuity Benefits f) Change in Retirement Age of Employees g) Change in Object of Trust h) Change in Trust Rules i) For winding up of Trust due to winding up of the Company j) For Transfer of Gratuity Fund from one Trust to another in the Event of Merger or De-merger
h. All matter related to Old Gratuity Trusts and Group Gratuity Schemes such as Vetting work of Deed of Variations, Application, Board Resolution, and Application to Bank, LIC & CIT in various events such as Merger, De-merger, Acquisitions etc.
For more details, contact me at 9211637063.
From India, Delhi
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Group Insurance Scheme in Lieu Of EDLI.doc