Gratuity – An Overview
Gratuity is a statutory benefit governed by Payments of Gratuity Act, 1972. Under
the Act, it is employer’s statutory liability to pay 15 days salary (15/26 of a
month's wages, taking the last drawn salary as the basis) for every completed years
service to each of his employees on their exit, for any reason after five years
of continuous service, subject to maximum limit of 3.5 lacs. The employee is eligible
for 15 days of pay for each completed year of service, either on:
- Retirement
- Permanent Total Disablement during service
- Death during service
- Resignation from service
The employer can also structure a gratuity benefit that is higher than stipulated
in the statutory requirements.
Future Generali Group Gratuity Plan
It is a known fact that the Gratuity Liability tends to increase with time as the
salary and the tenure of the employees increases. An employer can pay out the gratuity
proceeds from his current revenue (on a PAYGO basis) but this can cause financial
strain at times. Thus, a prudent and tax efficient way of meeting Gratuity Liability
is to ascertain the Liability, set up a Gratuity Fund and pay contributions as and
when required.
Future Generali offers you a Conventional, Deposit Administration type of Gratuity
plan. The contribution made by you will continue to accumulate and at the end of
the financial year the income earned on your contribution will be credited to your
gratuity account. The rate of interest will have two components; a guaranteed part
and a non-guaranteed part. The non-guaranteed part would apply only to withdrawals
taking place in that year and is not guaranteed for the subsequent years. The guaranteed
part, once allotted is guaranteed.
Hence, you build a Gratuity Fund systematically, benefiting from investment returns
which are safe and stable and thus provide the benefits in a cost effective manner.
The Future Generali Group Gratuity Plan brings you a host of features that can assist
you in meeting your obligation in a systematic and cost effective manner.
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A Basket of Benefits
- We offer you value by providing a platform of a large pooled fund providing smooth
returns, safety through diversification backed by our in-house investment expertise.
- Flexibility in payment of premium; you can pay contributions yearly, half-yearly
or quarterly
- Liquidity management - Allows liquidity; money available anytime
to meet benefit payout
- Death benefit, optional additional death benefit and other benefits:
The plan has a built in death cover of Rs. 1000 that comes at no additional cost.
Additional death cover, accidental death cover, disability cover or critical illness
cover can be provided to your employees customized to suit specific needs. The additional
death cover, as per your choice can be structured as flat cover, a graded multiple
of salary or based on ‘loss of future service Gratuity’
Eligibility Criteria
All employer-employee groups with a minimum size of 25 employees.
Tax Benefits
For Employer
- The initial and Annual contributions made through an approved Gratuity trust can
be claimed as business expenditure as per the provisions under section 36 (1) (v)
of the Income Tax Act, 1961 subject to maximum limit of 8.33% of annual salary in
respect of each member.
- Income of investments is exempt from tax under section 10(25) (IV) of the Act.
For Employee
- Gratuity benefits are tax free up to Rs.3,50,000 in the hands of employee.
- The contribution made by the employer is not included in the value of taxable perquisites
in the hands of the employee.
- Any death benefit under the Group Term Insurance is tax-exempt under section 10
(10D) of the Income Tax Act, 1961
These tax benefits are as per our understanding of the Income tax Act 1961 and is
subject to change. For further details please consult your tax advisor.
Contributions
The contributions made towards the Gratuity Liability will depend on the ‘actuarial
valuation’. The Gratuity Liability and contribution can be estimated on an actuarial
valuation provided by a qualified actuary by way of an AS-15 certification.
For a newly set up Gratuity Trust, the Past Service Gratuity Liability payment can
be made over a period of 5 years.
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