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Approved gratuity trust

N.Padma (GM Finance) (24 Points)

30 May 2011

Ours is a private limited company. We are planning to establish a group gratuity trust. We have just now prepared the trust deed and we are yet to get the approval from IT commisioner. Can a provision for the eligible amount be made in the books of accounts for the year 2010-11 towards tax planning and get the approval and payment towards the fund before the filing of the returns.

Please advise as it will save a substantial amount of tax for 2010-11.

Padma

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Rahul Agarwal (Future CA) (217 Points)
Replied 30 May 2011

The below is subject to 1 condition, i.e., you need to get a certificate from an actuary as per AS 15 of ICAI regarding your estimated liability of Gratuity.

Past service liability if funded by payment of single or in installments not exceeding FIVE, then the whole of contribution will be eligible for tax relief in the year of payment

Contribution paid to the trust fund by an employer is treated as an business expenses. (Sec 36 (1)(v))

Under Sec 40 A (7) no deduction shall be allowed in respect of any provision made by the employer for the payment of gratuity to his employees on retirement or termination of their employment. Deduction in computing the income of the assessee for any assessment year is available only on actual contribution of the liability to an approved gratuity fund

The income of an approved gratuity fund is exempt under Section 10(25) (iv)

Conclusion

You can get tax benefit for the amount as much contributed by you towards the fund and actual amount paid during the year as gratuity to your employees.

I hope this is useful to you.

Please consult experts.

Regards,

Rahul

1 Like

Ram kr. (Buisness) (883 Points)
Replied 24 February 2012

what we should file any income tax return regarding Gratuity Trust. Pl. advice.

Thanks

NolanFan (AAA) (36 Points)
Replied 25 October 2012

Hi Mr.Rahul Agarwal,

This is in reference to your below lines.

"Past service liability if funded by payment of single or in installments not exceeding FIVE, then the whole of contribution will be eligible for tax relief in the year of payment"

Every year, shall i claim tax relief for the installment amount paid or I will claim only after paying all the installments (Full past service liability)?

Kindly help.

Sangeet Kr Gupta (Chartered Accountant) (77 Points)
Replied 01 October 2017

You will get the benefit in Income tax computation sheet-- based on the actual cash flow

paid by the company to the Trust / LIC policy

merely making provision = Then it will continue to be added back

Tikaram Chaudhary (Founder of Gratuity Trust Fund Consultant) (2187 Points)
Replied 25 December 2017

Benefits of Creating Group Gratuity Trust Fund

For more details on the above subject visit - https://groupgratuityfundconsultantindelhi.blogspot.in/2017/12/benefits-of-creating-group-gratuity.H T M L

Rishi Mehta (Ur friend ) (1533 Points)
Replied 25 December 2017

Section 36(1)(v) goes on to provide that deduction will be allowed inrespect of employer’s contribution towards approved gratuity fund.

According to section 40A(7) no deduction will be allowed for employer contribution in an unapproved gratuity fund.

Further, section 43B provides that the deduction which is allowable under section 36(1)(v) will be allowed on actual payment basis i.e. in the financial year in which employer contribution is actually credited to employee account in the approved gratuity fund.

In your case, no deduction will be allowed for provision made in unapproved gratuity fund for past year. Since your company is making contribution by way of provision in unapproved gratuity fund.

Rishi Mehta (Ur friend ) (1533 Points)
Replied 25 December 2017

** Section 40A(7) Provision for gratuity disallowed i.e. we can conclude that the mere creation of provision for gratuity in the books account will not lead to unapproved gratuity fund to approved grauity fund.