Payment of Gratuity

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G Muralidharan (Querist)

17 November 2008 It is a case of private limited company. They have not made any provision for Payment of Gratuity in the books. As and when Gratuity liability arises, calculations are made as per Payment of Gratuity Act and are paid to the employees who retire or resign etc., Now my question is:

a) u/s36(1)(5) provides for Payment to Approved Gratuity fund alone are eligible for deduction. But in this case nothing is paid into Grautity fund but Gratuity is paid to retired staff as per Payment of Gratuity Act.
b) Since there has been actual payment, can we claim deduction u/s37(1)

Pl enlighten

G Muralidharan

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

17 November 2008 YES.
AS-15 is to be followed.Otherwise it is a violation of 211(3C)of the companies act,1956.

G Muralidharan

G Muralidharan (Querist)

17 November 2008 Thanks. I agree with you with regard to AS 15. But my question is allowability on actual payment basis. Can I come under 37(1) to claim deduction for Gratuity Paid. I may kindly be informed whether any prohibition is there to make payment of Gratuity on cash basis in lieu of making provisions. Though it is not permissible under Companies Act, what about in Incometax

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)

17 November 2008 Yes it is allowed as and when paid

G Muralidharan

G Muralidharan (Querist)

17 November 2008 Is there any case laws in support of this

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

17 November 2008 Doesn't mean that it is not permitted in companies act. If AS -15 is not complied the company and the auditor has to disclose in the notes to the account:
1) the deviation from the accounting standard
2) the reason for such deviation and
3) the financial effect,if any, arising due to such deviation.

G Muralidharan

G Muralidharan (Querist)

17 November 2008 Thanks for your immediate response. I stand corrected

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