Payment of gratuity act

Under section 36(1)(v) of the Act, any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the benefit of his employees under an irrevocable trust is allowable as a deduction in the computation of income from business/profession. For obtaining the approval, the employer should comply with the requirements laid down in Part C of the Fourth Schedule to the Act, as well as the requirements laid down in rules 98 to 111 of the Income-tax Rules.

The contents of the rules vis-a-vis Part C of Fourth Schedule

98.2 The aspects in respect of which mention is made in Part C of the Fourth Schedule, but detailed requirements are laid down in the rules, are tabulated below:

As per Section 4A Payment of Gratuity Act contribution towards LIC for gratuity is mandatory to whom payment of gratuity act applies. Also employer gets benefit under Section 36 1(v) for income tax deductions.

So Contribution towars LIC is contribution towards approved gratuity fund only.

LIC give the details as to how the Group Gratuity (Cash Accumulation) Scheme provides for a convenient mode of funding the statutory obligation of an employer under the payment of Gratuity Act.

As Explained above Since the insurance is mandatory as per payment of Gratuity Act and also employer takes insurance for which he gets the deduction benefit. Hence insurance is taken for complying the provisions of Gratuity Act and getting deduction under Income tax Act. If he doesn't take he will be entitled to get Gratuity benefit. He will get the benefit only when the amount is paid to the employees.