What is Gratuity
Derived form the word “Gratitude”
Lumpsum amount paid by employer to employee at the time of retirement, superannuation or death
- Payment of Gratuity Act, 1972
- Income Tax Act, 1961
- AS 15/ Ind AS 19 – Employee Benefits
Provision of Gratuity liability
Payment of Gratuity Act, 1972
- Section 4A(1) – Purchase a Gratuity insurance from LIC
- Section 4A(2) – Establish an Approved Gratuity Fund
Functioning of the Gratuity Trusts(Approved Gratuity Fund)
- A trust [assessable as an AOP u/s 164(1)(iv)], with atleast 2 trustees is to be formed
- Approval of CCIT/PCCIT is to be taken
- The trust should have separate books [Rule 109] & separate bank account with a scheduled Bank [Rule 101]
- Contribution to Approved Gratuity Fund – Allowable as deduction u/s 36(1)(v) of Income Tax Act, 1961
- Contribution received by the Fund/Trust – Is a Capital receipt, so not taxable
- Income accrued/derived from the Investments made out of Contributions – exempt from tax u/s 10(25)(iv).
- Contribution to be invested in the manner specified under Rule 67(2) of Income Tax Rules
- CBDT Circular No. 18/2017 dated 29th May 2017 exempted these trusts from ITR Filing u/s 139.
- The above circular also states that TDS need not be deducted on payments made to these trusts.
Read This: PF TRUSTS – AN OVERVIEW
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