Approved gratuity trust

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

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

Thanks 

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.

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 

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

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.

** 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.