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Approved Gratuity Trust Formation - Entire Process

Brief Overview

Any organization which has been operating with minimum number of 10 employees becomes liable to pay gratuity to those who have completed five years of continuous service, upon retirement or leaving the job.

Traditional method

In the traditional method we just create provision for gratuity liability in balance sheet, however funds are never transferred to separate pool to meet future liability. The expense provision made for gratuity is also disallowable expenses as per Income Tax Act.

Group gratuity scheme

Under group gratuity scheme amount is transferred every year based on actuarial valuation and invested in range of equity and debt funds to pay for the liability on account of the retirement of the employees in the future.

Benefits of group gratuity scheme

  • Tax benefits at 25.17% of the amount contributed in the Group gratuity scheme trust. Contributions to an approved Gratuity fund is deductible under section 36 (1)(v) of the Income Tax Act, 1961.
  • Income accrued on the investment made by the group gratuity scheme is exempt from income tax under section 10(25)(iv).
  • No sudden cash flow at the time of retirement/resignation
  • Trustworthy relationship with employees

Process of setting up Trust

  • Step 1: Drafting and execution of the trust in deed and appointment of trustees
  • Step 2: Application for PAN card of trust
  • Step 3: Opening of bank account of trust
  • Step 4: Application with commissioner of income tax for the approval of the trust
  • Step 5: Investment in the chosen funds of insurance companies

Our Scope of Work

  • Drafting of the trust deed and trust rules
  • Advising on Trust related matters
  • Application for the pan card of the trust
  • Assistance during the bank account opening process if required
  • Application with the commissioner of income tax for the approval of the trust
  • Appearing before the income tax authorities for the approval of the trust
  • Continuous follow up till the trust approval letter is received from the income tax

DOCUMENTS REQUIRED

  • Copy of PAN card of Employer
  • Copies of Audited Financials and ITR of Employer for the latest available three years.
  • List of all the offices and branches of the Employer
  • List containing the details of employees of the employer
  • Name and address of the trustees

WHY EASY ACCOUNTING

  • Approximately 42,000 employees in the trust advised by us
  • Trusted by more than 100 trusts across India
  • Faster turnaround time for income tax approval
  • One stop solution for the entire process
  • Hassel free experience in the complex process
  • 5+ Years of group gratuity centric experience

TIMELINES

  • Creation and execution of the Trust deed – 5-10 days
  • PAN Card application – Within 5 days from the execution of trust deed
  • Bank account: Around 15 days from the date of receipt of PAN card
  • Process for Income Tax Approval: Around 4-6 months from the date of execution of Trust Deed

KEY CLIENTELE

  • An American multinational shipping & receiving and supply chain management company
  • Listed Aerospace and defense company
  • Listed subsidiary of the Indian conglomerate providing Satellite Communication Service Provider
  • Listed Multinational Multi-technology automotive components supplier
  • Leading Trade Credit Insurance Adviser
  • One of the biggest listed Rural non-banking financial Company
  • Manufacturer of high-quality reactive dyes
  • Leading logistics service provider
  • Leading American Multi-national construction company with presence in 20 countries
  • World’s leading synthetic rubber company
  • India’s most recognized stationery brand

FAQs

Yes, it is mandatory to take the approval from the commission of income tax in order to get the deduction of expenses under section 36 (1)(v) of the Income Tax Act, 1961.

Except for the state of Telangana and Andhra Pradesh, it is not compulsory to fund the gratuity liability. (State of Andhra Pradesh notified about the compulsory insurance for Gratuity under Andhra Pradesh Compulsory Gratuity Insurance Rules, 2011 vide Lr.No.M1/8842/2010, dated: 04.12.2010 from the Commissioner of Labour, Andhra Pradesh and remains un-notified for rest of India).

Self-Managed Trust – Fund the liability by creation of a Gratuity Trust and managing the
funds internally.
Through a Life Insurer – Fund the liability by creation of a gratuity trust and managing the
funds through the professional services of a life insurance company.

Yes, funds can be transferred and deduction can be taken based on the acknowledgment
received from the income tax department.

Step 1 Intimation to insurance company
Step 2 Gratuity calculation checking by the insurance company
Step 3 Transfer of gratuity amount from the insurance company to the trust bank account
Step 4 Transfer of gratuity amount from the trust bank to the employee bank account

Anyone including the directors and employees can become the trustees.

Yes, AS 15 requires an actuarial valuation to be done for certain types of employee benefits schemes, including gratuity benefit.

Yes, we can make changes in the trust after its formation by way of deed of variation.

Yes

All the employees will be the members of the trust except the directors holding more than 5% shares.