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The Payment of Gratuity (Amendment) Act 2018 provides Social Security to Teachers working in Educational institution (i.e. Private Schools) having 10 or more employees on any day in the preceding 12.

The amount of Gratuity payable to an employee on his exit from service, according to 'The Payment of Gratuity (Amendment) Act 2018', in force at present, is:-

(Wages of the employee at the time of exit) x (15/26) x (Number of Years of Service at the time of exit)

This is subject to a ceiling limit of 20,00,000/- effective from 29.03.2018.

Gratuity is payable to an employee on exit from service after he has rendered continuous service for not less than five years:

(a) On his superannuation
(b) On his resignation
(c) On his death or disablement due to injury or disease.

In the case of (c) vesting condition of 5 years does not apply.

Gratuity Benefits depends upon the last drawn monthly wages and is linked to the length of service, normally it goes on increasing from the time when the teachers joins service and the time of his exit from service due to following factors:-

(a) Increase in Past Service of Teacher due to low attrition/withdrawal rate of Teachers in School.
(b) Increase in wages of Teacher due to Pay revisions as per Pay Commission Revisions.
(c) Regulatory Changes in payment of Gratuity Act.

In presence of above factors and due to limited Income Resources. It becomes really important for Private School to Create An Approved Gratuity Trust. in terms of Part C of the Fourth Schedule to avail tax benefit available under various section of the Income Tax Act, 1961.

Few Benefits of Creating Gratuity Trust are as under :-

1. The *Initial contributions & Annual Contributions (*For more details Refer Rule 103 & 104 of Income Tax Rules 1962) by the company are allowed as a deduction under Section 36 (V) of the Income Tax Act 1961.

2. Interest Income of the Gratuity Fund is not liable to Income Tax in Terms of Section 10 (25) (iv).

3. By establishing an approved Gratuity Fund Trust Schools not only get the above Tax benefits but they discharge their Gratuity liability on an annual basis by contributing it to the Approved Gratuity Trust, also when a large number of employee leaves the company in the future, the payment of the Gratuity made by the Gratuity Fund and companies remains protected from such a Financial Risk.

The establishment of Gratuity Trust requires in-depth knowledge of various rules/regulations and expertise. We have a team-leading Professionals, Litigation Partners, Chartered Accountants, Company Secretaries & Heads of Insurance Companies having decades of experience in providing their services to our 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, Educational Institutes, Schools, Universities, Hotels, Hospitals, Hospitality Companies, etc. etc.


Published by

Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
Category Income Tax   Report

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