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

 PAY-AS-YOU-GO (PAYG)  FUNDING GROUP GRATUITY SCHEME METHODS OF MEETING THE LIABILITY METHODS OF MEETING THE LIABILITY

 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 ADVANTAGES OF FUNDING

 Flexibility of contributions w Trustees relieved from investment of funds w Full liquidity GROUP GRATUITY SCHEME FUNDING THROUGH LIC’s GROUP GRATUITY SCHEME FUNDING THROUGH LIC’s GROUP GRATUITY SCHEME

 Attractive experience based yield w 100% security of capital w Additional death cover based on prospective service at a nominal cost FUNDING THROUGH LIC’s GROUP GRATUITY SCHEME (Contd..)

 ACTUARIAL VALUATION  CERTIFICATE AS PER AS - 15  DOCUMENTATION AND LEGAL ADVICE  ADMINISTRATION  YEAR END FUND ACCOUNT WITH FULL DETAILS GROUP GRATUITY SCHEME ADDITIONAL SERVICES AT NO SEPARATE COST

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)

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 GROUP GRATUITY SCHEME