GROUP GRATUITY SCHEME
PAYMENT OF GRATUITY ACT, 1972
APPLICABILITY : On Employers with ten
or more Employees
GROUP GRATUITY SCHEME
GRATUITY:

A Lump Sum Benefit

15 days’ salary for each year of completed
service
Service of 6 months or more taken as one year
Maximum amount, Rs. 3.5 lakhs


WHEN PAYABLE:



On Death or disablement
On Retirement or Superannuation
On Resignation
GROUP GRATUITY SCHEME

Minimum service condition of 5
years does not apply in case of
death or disablement

Gratuity Act specifies minimum
payable gratuity. An employer
may pay more than it
GROUP GRATUITY SCHEME
METHODS OF MEETING
THE LIABILITY

PAY-AS-YOU-GO (PAYG)

FUNDING
GROUP GRATUITY SCHEME
ADVANTAGES OF FUNDING

Sound financial Principles require
advance funding

Liquidity or cash flow problems
may arise in future, if not funded

Overstatement of profit for taxation
purpose hence advancement of tax,
if not funded

Security for employees
GROUP GRATUITY SCHEME
FUNDING THROUGH LIC’s
GROUP GRATUITY SCHEME

Flexibility of contributions

Trustees relieved from investment
of funds

Full liquidity
GROUP GRATUITY SCHEME
FUNDING THROUGH LIC’s GROUP GRATUITY SCHEME (Contd..)

Attractive experience based yield

100% security of capital

Additional death cover based on
prospective service at a nominal
cost
GROUP GRATUITY SCHEME
ADDITIONAL SERVICES AT
NO SEPARATE COST

ACTUARIAL VALUATION

CERTIFICATE AS PER AS - 15

DOCUMENTATION AND LEGAL ADVICE

ADMINISTRATION

YEAR END FUND ACCOUNT WITH FULL
DETAILS
GROUP GRATUITY SCHEME
STEPS FOR INSTALLATION
OF SCHEME

DECIDE TO FUND (BOARD RESOLUTION)

APPOINT THE TRUSTEES

DRAFT AND EXECUTE TRUST
DEED AND RULES

CREATE A FUND

APPLY TO COMMISSIONER OF
INCOME TAX FOR APPROVAL
GROUP GRATUITY SCHEME
FOR EMPLOYER
 Annual and past service Contributions are allowed
as business expense (Maximum limit is 8 1/3% of
Annual Salary in respect of each member).
(Section 36(1)(v))
 Past Service contributions may be paid in
lumpsum or in instalments (maximum five)
 Interest Income received by the trust is exempt
from Income-tax (Section 10(25)(IV)
GROUP GRATUITY SCHEME
FOR EMPLOYEES
 Contribution paid by an employer is not treated as
an income in the hands of the employee
 Gratuity amount is not taxable upto Rs. 3,50,000/(Section 10(10)(iii))
 Amount payable on death of the member is not
taxable