Gratuity Trust Fund Consultant Services for Indian and Multinational Companies

Our Firm Gratuity Trust Fund Consultant is an MSME Registered with Ministry of Micro, Small and Medium Enterprise with Registration Number UDYAM-DL-11-0013795.  Our Consulting Firm is headed by Mr. Tikaram Chaudhary, he 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. IndAS19, AS 15 (Revised 2005), IAS 19 (Revised 2011) & USGAAP 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, IndAS 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: -

 Actuarial Valuation Solutions

As per provisions of Section 129 of the Companies Act 2013, Indian and Multinational Companies Operating India needs to prepare the Financial Statement such as Balance Sheet & Profit/Loss Accounts at the closure of each financial year in compliance of Accounting Standards as stipulated in Section 133 of the Companies Act 2013, so that they can give a true and fair view of state of affairs of the company. Accounting and Disclosure requirements for Employee Benefits Plans is laid down in the following 2 Accounting Standards as issued by The Institute of Chartered Accountants of India (ICAI): -

               

A.      Indian Accounting Standard for Accounting of Employees Benefits

 

INDIAN GAAP- AS-15 (Revised 2005)

IndAS-19

 

B.       Global Accounting Standard for Accounting of Employees Benefits

 

International Accounting Standard (IAS-19 Revised 2011) of the IFRS

US GAAP – (FAS-87, 88 & 158) etc. 

Generally, Actuarial Valuations for compliance above Accounting Standards are required for following Employee Benefit Plans under: -

a.       Actuarial Valuation for Gratuity Plans,

b.       Actuarial Valuation for End of Service Benefit Plan,

c.        Actuarial Valuation for Earned Leave Plan,

d.       Actuarial Valuation for Sick Leave Plan,

e.       Actuarial Valuation for Defined Benefit Pension Plans,

f.         Actuarial Valuation for Post-Retirement Medical Benefit Plan,

g.       Actuarial Valuation for Settlement Allowances on Retirement,

h.       Actuarial Valuation for Long Service Award Plans/Incentive Plans,

i.         Actuarial Valuation for Interest Rate Guarantee for Exempted Provident Funds,

j.         Actuarial Valuation for other Defined Benefit, 

          The Actuarial Valuations are required by the Indian Companies in following events :-

                               

1.    For making the Initial & Annual Contribution into Gratuity Trust Account for Investment in Compulsory Gratuity Insurance.

2.    Annually, Half Yearly and Quarterly for making provision of Gratuity Liability in BS as Accounting Standards (i.e. AS 15 Revised 2005) and IndAS 19) per Section 133 of the Companies Act, 2013

3.    On The Date of Transfer of Employees from One Company to Another

4.    On the Date of Acquisition

5.    On the Date of De-merger

6.    For Submission of Actuarial Reports of last 5 year in SEBI for Listing on Share Market

7.    For assessment of Actuarial Liability for Taking Grant from any Ministry

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 past 12 months before 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 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 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 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.    2.       

 

Our Team – We have a team of highly skilled personnel equipped with the expertise-statistical, actuarial and analytical essential to meet the changing needs of Accounting Standards. Our human resources is our strength and asset. We have a office with adequate Infrastructure (Computer Hardware). We also have a team of Legal Consultants, Taxation Consultants, Actuarial Valuation Consultants & Merchant Bankers Consultants to attend all critical case related to Employee Benefits Actuarial Valuations and Trust Formation.

Our Clients: - We have more than 1000 clients spread in all sectors of the Indian Economy in the Public & Private Sectors which covers areas of Manufacturing, Software, Technology, Electricity, Electronics, Call Centers, Banks, Schools, Universities, Educational Institutes, IIT’s, Hotels, Hospitals, Hospitality Companies etc. etc. The names of few of them are as under :-

 

a.       Compact India Pvt Ltd

b.       Piller Power India Pvt Ltd

c.        Blaser Swiss lube India Pvt Ltd

d.       Tally Solutions Ltd  

e.       NABARD Consultancy Services Pvt. Ltd (NABCONS) -A wholly owned subsidiary of NABARD

f.        NNE Pharma Tech

g.       Capsitech IT Services Pvt Ltd

h.       Toppan Aditya Infotech Ltd

i.         Toppan Speciality Films Pvt Ltd

j.         Rehabilitation Council of India & more than 1000 companies.

 

 

 

Tika Ram Chaudhary

Founder

GTFC

(Corporate Consulting Firm providing Actuarial, Legal, Insurance and Investment Solutions for Employee Benefits (i.e. Gratuity, Leave Encashment, Pension, PRMB etc.) Trusts in compliance of the Payment of Gratuity Act, 1972, The Payment of Gratuity (Central) Rules, 1972, CCS Pension Rules, 1972, AS 15 (Revised 2005), IndAS 19, IAS 19 (Revised 2011) – IFRS, Part C of Schedule IV of Income Tax Act, 1961 & Rule 98-111 of Income Tax Rules to Indian and Multinational Companies)

Registered Office Address - R-11, First Floor, Vikas Nagar, Uttam Nagar, New Delhi - 110059 (India)

Official Communication Address - Plot Number 16, Street Number 9, Prem Nagar, Uttam Nagar – 110059 (India)

Mobile No. - 9211637063, 9818322186

Landline Number - 011-45261651

E-mail - tikaramchaudhary@gratuitytrustfund.com, tikaramchaudhary@gmail.com

Website -  www.gratuitytrustfund.com

LinkedIn Profile - https://www.linkedin.com/in/tika-ram-chaudhary-a5727848/

Ca-club-india Profile - https://www.caclubindia.com/profile.asp?member_id=1446582

Tax Guru Profile - https://taxguru.in/author/tikaramchaudhary@gmail.com/

Website - www.gratuitytrustfund.com

Blog - http://gratuitytrustfundconsultant.blogspot.com

Google Business Listing -  https://gratuitytrustfund.business.site/

 

Our Terms & Conditions: - All services provided by him are subject to terms & conditions stated when a job is accepted.

Why Companies can not take Gratuity Insurance directly from Insurance Companies without an Approved Gratuity Fund established under Irrevocable System ?

The Payment of Gratuity Act, 1972 is applicable to all establishments (i.e. MNC's, Private Schools, Private Colleges, Private Universities, NGO's, Autonomous Bodies and Other business entities) having more than 10 employees. Gratuity is a statutory right of employee whoever completes 5 years in the same Establishment and is a terminal benefit, it means gratuity amount will be determined when the monthly terminal wages of the employee are known to Establishment. The cost is to be borne by the Employer and not by the Employee hence it can neither be shown as deduction from employees salary nor as a Part of CTC of employee. 

Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,- 

(a) on his superannuation, or 

(b) on his retirement or resignation, 

(c) on his death or disablement due to accident or disease

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement

Social Security Code and Benefits of Forming Gratuity Trust in Terms of Part C of Schedule IV

 This Post is prepared to create awareness amongst the CA, CS, CMA, CFO, Auditors and Directors of the company about the Impact of Social Security Code on Financial Statements (i.e. Balance Sheet & Profit/Loss Statement) of Indian Companies and Options available to companies for mitigating the such Financial Impact. 

The New Provisions for Gratuity Benefits as per Social Security Code 2020 will be effective in near future. Analysis of New Provisions for Gratuity Benefits reveals that there will be an exponential rise in Gratuity Liability of Companies in due to following 4 Provisions: -

i. Change in Definition of Wages (i.e. Wages to be 50% of CTC)

ii. NIL vesting period for Gratuity Payment for Fixed Term Employees.

iii. Vesting period to be 3 years in case of Special Correspondent.

iv. Compulsory Gratuity Insurance for Employees

 

A detail working for the Analysis of Impact of above 3 factors is available at my recently published article on www.taxguru.in at following weblink - https://taxguru.in/income-tax/factors-affecting-gratuity-benefits-accounting-taxation-gratuity-benefits.html 

Companies have 2 options for Management for payment of Gratuity to Employees:

I.   Accounting Option – It is compulsory for all Indian Companies, which falls under the preview of Payment of Gratuity Act 1972 (a) till 31.03.2021 & under the preview of Social Security Code, 2020 on or after 01.04.2021. This option is also called Pay as you Go option. All Indian Public Sector, Private Sector and Multinational Companies need to prepare the Financial Statement such as Balance Sheet & Profit/Loss Accounts at the closure of each financial year as per provisions of Section 129 of the Companies Act 2013. As per provisions of Section 133 of the Companies Act 2013, Financial Statements should be prepared in compliance with Accounting Standards as stipulated by the Ministry of Corporate Affairs so that they can give a true and fair view of the state of affairs of the company. Gratuity provision based on the Actuarial Valuation Report received from Actuary is required by the company for compliance of Para 133 of the Companies Act 2013 for preparation of Financial Statement to comply with the requirement of Accounting Standard 15 (Revised 2005) but it is not allowed as a deduction under Section 40A(7) of Income Tax Act, 1961 (as amended time to time). The Section is produced below:- 

“ (a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of Gratuity to his employees on their retirement or on termination of their employment for any reason.

(b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.”

 II. Compulsory Gratuity Insurance Option – Indian Companies prefer this option due to Annual Tax benefits available under Section 36 (1) (v) of the Income Tax Act 1961. This Tax benefit is not available in option 1 above. Few Benefits of  Compulsory Gratuity Insurance are given below: - 

1. Tax Benefits

              I. Initial Contribution based on actuarial report (Refer Circular : No. 30(XLVII-18), dated 30-11-1964 for clarification for Rule 103 for Initial Contribution of Income Tax Rules 1962) made by the Companies is treated as an 

                 annual expense for Income Tax Computation of the Company (Refer Section 36(1)(v) of Income Tax Act 1961. Section 36(1)(v) of Income Tax Act, 1961 reads as under :-

              

                “any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust”

II. Annual Contribution an amount equal to 8.33% of basic salaries can be paid into a gratuity fund as a tax-deductible expense.

III. Interest or investment income earned within the gratuity fund is also tax-free.

2. For Risk Management of Gratuity Benefits of Employees even in case of Financial Crisis:-  Once companies forms an Approved Gratuity Trust and starts making contribution into the trust then their vulnerability to making the default for Gratuity Payment to employees as per the Section 7 of the  Payment of Gratuity Act 1972 is taken over by the Irrevocable trust subject to fund available with them. Since the Approved Gratuity Trust are Irrevocable, so the money contributed by the companies will be exclusively used for payment of Gratuity Benefits to the Employees and fund money cannot be used by the company even in case of Bankruptcy.

3. Liquidity Management: - If Gratuity Benefits are unfunded, companies will need to pay off the gratuities to leaving employees as and when they leave. Therefore, the amount companies would pay Could vary greatly from year to year as the number of people leaving will be uncertain. This would be a particular concern for small or mid-size companies where the resignation of just a few senior employees, with high salary and service, could create a strain on their cashflow positions. On the other hand, if a scheme is ‘scientifically’ (or actuarially) funded, the fund will build up during the years when no major payouts are paid and then used when large payoffs are required to be paid. 

4. Cashflow Stability: - For new companies, the gratuity payments to employees would be few and low. However, gratuity payouts increase nearly exponentially as employees age and work longer. By having the liabilities funded, companies can replace the rapidly increasingly gratuity payouts with a relatively stable stream of contributions into the fund.      

Companies can avail above benefits after FORMING A CIT APPROVED GRATUITY FUND. As per Governing Rules 98-111 of Income Tax Rules, 1962 for Approved Gratuity Fund - A Gratuity Fund can only be established under an Irrevocable Trust. Establishment of Gratuity Trust requires in-depth knowledge of various rules/regulations and expertise of the following: -

1.      The payment of Gratuity Act, 1972 (a)

2.      The Companies Act, 2013

3.      The Accounting Standards – AS 15 (Revised 2005) & IndAS 19

4.      The Indian Trusts Act -1882

5.      The Income Tax Act, 1961

6.      The Income Tax Rules, 1962

7.      The Actuaries Act, 2006

8.      The Actuarial Practice Standard – APS 27

9.      The Social Security Code &

10. The Minimum Wages Act, 1948, etc.

We as a Team of Experienced Professionals at Gratuity Trust Fund Consultant have over 12 years of experience in helping and providing Actuarial, Legal, Investment and Accounting Solutions for Formation of New Gratuity Trust/Fund as per provisions of the Part C of Fourth Schedule of Income Tax Act 1961 to Indian Public Sector, Private Sector and Multinational Companies. The details of Actuarial, Legal, Investment and Accounting Solutions offered by us are as under: -

1.      Actuarial Solutions: The process of Formation of Trust to establish Gratuity Fund starts with Actuarial Valuation of Gratuity Liability for Initial Contribution and it helps Management of a company to understand how much money initially be required to be contributed into the Gratuity Fund of a Trust. Our team give assistance/guidance to the HR, Accounts and Taxation Professional of our clients: -

a.      Identification of the Employees to be included for Actuarial Valuation for Initial Contribution & Annual Audit of Gratuity Trust in Compliance of AS 15 (Revised 2005) & IndAS 19 (Refer Section 133 of Companies Act 2013),

b.     Guidance for wages to be used for Actuarial Valuations,

c.      Guidance for Date Format to be used in Employee Data Preparation,

d.     Selection of Gratuity Plan Provision and benefit formulae to be submitted for Actuarial Valuation,

e.      Guidance for Analysis of Past Trend of Financial & Demographic Assumptions such as Salary Escalation, withdrawal Rate, Mortality Rate, Disability Rate etc. to be supplied for Actuarial Valuations,

f.       Reconciliation of benefit paid & Fund Position to be submitted for Actuarial Valuations disclosures in BS.

g.      Support to officials of the company for clarification of Auditors queries related to Actuarial Valuations.   

2.   Legal Drafting Solutions:

    

    a. Vetting of Board Resolutions, Trust Deed & Trust Rules

    b. Vetting of Deed of Variations and Applications required by Trustees/Companies for Approvals from CIT for Gratuity Trust in terms of Part C of Schedule IV of Income Tax Act,1961 in following cases: -

i.    Change in Name of Trust,

ii.   Change in Address of Trust,

iii.  Change in Trustees,

iv.   Change in Investment Pattern of Gratuity Funds from Insurer to another,

v.    Change in Benefit Formulae for Gratuity Benefits

                        vi.   Change in Retirement Age of Employees

                        vii.  Change in Object of Trust 

                        viii. Change in Trust Rules

                        ix.    Approvals for winding up of Trust due to winding up of the Company

                        x.     Approvals for Transfer of Fund in Event of Merger or De-merger

   c. Vetting of Application to CIT for Approval of Gratuity Fund as per guidelines of Rule Number 109 of Income Tax Rules, 1962

   d. Vetting of Appeal to CIT for knowing the reasons for status of Approval of Gratuity Fund as per guidelines of Rule Number 111 of Income Tax Rules, 1962

3.   Investment Solutions:

       a.  Advisory to Client for Selection of Gratuity Trust Money Investment as per Rule 67 (2) of Income Tax Rules, 1962 or with Insurer

       b. Selection of Insurer based on Rate of Return on Gratuity Fund Investment and annual recurring expenses for Employees Compulsory Gratuity Insurance & Fund Management.

      c. Managing communication with Insurer for Claims, Contributions, Annual Fund Statements, change in retirement age, change in trustees etc.

4.   Accounting Solutions: We also give Annual Accounting related services for Audit of Gratuity Trust (If applicable). 

Our experience in this field is spread over 12 years and we have a vast clientele in all sectors of the Indian Economy such as Industries (Software/Hardware Technology) in the Public and Private Sectors, Universities, Educational Institutes, Schools, Engineering Companies, Pharmaceuticals, FMCG (Fast Moving Consumer Goods) Companies, Warehouses, Laboratories, Hospitals, Hospitalities, Hotels, Banks, etc. etc. Our clients are from outside India also. We have highly skilled office personnel dedicated to rendering top quality service in our field. We’ll be happy to include you in the list of our esteemed clients if you opt to provide an opportunity to serve you. In case of any requirement or clarification in the matter, you may call us at 9211637063 or email your queries/requirements at tikaramchaudhary@gratuitytrustfund.com

 

Tika Ram Chaudhary

Founder

Gratuity Trust Fund Consultant

An MSME - Registered with Ministry Micro Small and Medium Enterprises vide Registration Number UDYAM-DL-11-0013795

(Corporate Consultant with more than 12 Years of experience in providing Accounting, Investment, Actuarial & Legal Solutions for Formation of Gratuity Trust - Formed by companies to get Tax Benefit available under Section 36 (1) (v) of Income Tax Act 1961 & related Support Services for preparation of Inputs for compliance of AS 15 (Revised 2005), IndAS 19 & IAS 19 (Revised 2011) - IFRS required by Gratuity Trust of Indian Companies)

Registered Office Address: R 11, F/F, R Block, Vikas Nagar, Uttam Nagar, New Delhi -110059

Mobile Number: 9211637063

Landline Number : 011261651

Email Id: tikaramchaudhary@gratuitytrustfund.com

Website : www.gratuitytrustfund.com

LinkedIn Profile: https://www.linkedin.com/in/tika-ram-chaudhary-a5727848/

Caclubindia Profile: https://www.caclubindia.com/profile.asp?member_id=1446582

Tax Guru Profile: https://taxguru.in/author/tikaramchaudhary@gmail.com/

 

(All services/consultancy is subject to terms and conditions)

 

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