Employees Group Gratuity-Cum-

Life Assurance Scheme

7/15/19
 Definition

• Group Gratuity scheme is nothing but managing fund meant

for Gratuity payment. The contribution made by the
employers towards the Group Gratuity Scheme subject to
maximum of 8 1/3% of the total annual salary is allowed as
business expenses during the financial year under Section 36
(I)(V) of Income Tax Act.

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Purpose

• Helps the employers to plan their future Gratuity

commitment right from the beginning.
• To save the employer from any such financial worries in
the future.
• This scheme will enable the employer to deposit the fixed
amount at any time of the year to save up for the liability
on account of the employees in future

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 Payment of Gratuity

• On behalf of company, trustees shall provide for the payment

of gratuity.
• Every employee who has completed 5 years of service on
their exit from the company is entitled to enjoy the benefit of
Gratuity act subject to maximum of Rs. 10,00,000/-. The
exit of the employees may be due to the following reasons.
 On termination of service
 On death
 Or retirement of member
The condition of 5 years of service is however not insisted in the
event of the death or permanent disablement of the employee
and the Gratuity commitment has to be honored.

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Benefits at Normal Retirement

• Benefits on or before normal retirement date or upon death whilst in

service or due to ill-health or incapacitation, the benefits payable will be
equal to fifteen days of salary for each completed year of service.
• This can be illustrated with the following example.
• An employee named X joins service at the age of 25 years.
• Retirement age : 58 years
• Assuming that the employee X dies in an accident or due to any other
reason at the age of 30 years.
• Left out service : 28 years.
• Salary at the time of death : Rs.10, 000/- month
• Gratuity actually payable to the employee : 10000 x 5 x 15 / 26
• : Rs.28,846 /-

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Benefits for Built In Insurance Cover (Life Assurance)

• Very important aspect of this scheme is the Built in Insurance cover. The built in
insurance cover assures the employees and their family the full service gratuity in case
of death of an employee during his service.
• This can be illustrated with the following example.
• An employee named X joins service at the age of 25 years.
• Retirement age : 58 years
• Assuming that the employee X dies in an accident or due to any other reason at the
age of 30 years.
• Left out service : 28 years.
• Salary at the time of death : Rs.10, 000/- month
• Under group gratuity scheme with this built in insurance cover LIC will pay the Amount
: 10000 x 33 x 15 / 26
• :Rs.1, 90, 385 /-

• Though LIC makes a payment of Rs.1,90,385 to the trust, LIC will deduct only
Rs.28,846/- (Actual payable amount to employee ) from the running account of the
gratuity fund managed in the name of the trust. Balance of Rs.1, 61, 539/- is met
out of LIC’s risk insurance fund.

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Benefits on leaving Service

• Employee leaving the service after completion of five year

of service the benefits payable will be equal to fifteen days
salary as on the day of leaving the service for each year of
service. The Employee will not be entitled to any benefits
if he leaves the service before completing five years of
service.

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Other benefits for the Trustees

• Manages the fund through LIC with an attractive yield and do

not incur any expenses on fund management.
• Tax Concession.
• Provision for better Gratuity facility through built-in insurance
cover.
• Employer can prefer the claims as and when the amount is to
be settled.
• Every year LIC value the liability by actuarial valuation, and do
not charge any fees for this valuation, and inform employer the
contribution payable.
• As regards the employee leaving before 5 years, the money
will remain in the fund and the same is automatically adjusted,
in the next years’ valuation, towards the contribution

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Rules of Trustees Meeting and Quorum
• Trustees may have meet together for dispatch of business and
otherwise to regulate their meetings and proceedings as per the
requirement.
• Two trustees need to be present at the meeting shall be a quorum.
• The company shall nominate one of the trustees to be the
chairman of the trustees, who shall preside at the meeting of the
trustees.
• Company shall also appoint an alternate chairman who shall act in
the absence of the chairman and exercise all the powers of the
chairman.
• If any trustee or trustees shall be temporarily absent from India the
Trustees who shall remain in India during such absence have full
powers to act under the trusts as if they were the only Trustees of
these presents.

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Eligibility for Membership

• The scheme effective date is 1st April 1995.

• The scheme gets renewed annually in each subsequent
year.
• Employee who are in the service of the company on the
effective date shall join the scheme as from the date.
• Present employees who has not join on effective date and
the employees appointed by the company after effective
date can join the scheme on the date on which they
become eligible.

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 Thank You
7/15/19