Provision for gratuity and el are long term or short term?

They are short term.

It will depend upon fact, short term if payable in 12 Months..

In accordance with the New Schedule VI classification of liabilities and assets into Long Term and Short Term, the classification of provisions such as Gratuity and Earned Leave depends on when the obligation is expected to be settled.

• Provision for Gratuity: Gratuity is generally considered a long-term liability because it is typically payable upon termination of employment, which could occur several years after the provision is made, unless the employee is expected to leave within the year.

• Provision for Earned Leave: The classification of earned leave provision can vary depending on the company’s policy and the specific timing of when the leave is expected to be utilized. If the employee is expected to take the leave within the next 12 months, it can be considered a short-term liability. If the leave is expected to be taken beyond one year, it may be classified as long-term liability.

For more detailed explanations on provisions under UAE Labor Law, as well as updates on the classification of liabilities and assets, you can visit our blog at UAE Labour Law. We provide a comprehensive breakdown of various provisions and legal classifications that affect businesses in the UAE.

Split it; don't classify all of it one way:

• Schedule III (Companies Act) and AS 15 / Ind AS 19: classify the provision based on when it is expected to be settled.

– Amount payable within 12 months after the reporting date (e.g. employees expected to leave or retire, leave expected to be encashed or availed): short-term provision (current).

– Balance: long-term provision (non-current).

• The actuarial report normally gives this current / non-current split. Use it directly.

• Earned leave: if employees have an unconditional right to encash leave at any time, Ind AS 1 treats the whole as current (no right to defer settlement). Under AS, the actuarial split is commonly followed.

• Tax: provision for gratuity is deductible only on actual payment or contribution to an approved gratuity fund (Sec 40A(7), 43B(b)). Leave encashment is allowed only on payment (Sec 43B(f), upheld by the SC in Exide Industries, 2020).