Page 172 - Group Insurance and Retirement Benefit IC 83 E- Book

Tax Treatment follows EET pattern

Contribution exempt E
Interest Income tax-free E

(build-up of the Fund)
Gratuity Benefit in excess of ½ month‘s

salary for each year of service or
15 months‘ salary (which is lower) subject

to maximum of Rs. 3,50,000/- is taxable. T

Funding is not compulsory
Partial Funding is allowed.

You can fund part of the liability and for the balance portion you may make only
accounting provision.

You may not Fund the liability and keep the Entire liability is unfunded
Many employers are under the impression that if gratuity is funded with LIC or

any other insurers, there is no need for actuarial valuation.
The Accounting Standards Board of Institute of Chartered Accountants of India

has clarified as under:

In case of defined benefit schemes covered under a Group Gratuity or other

defined benefit scheme with an insurance company, where the actuarial risk and
investment risk have not been transferred from the enterprise, where an enterprise can

rely upon actuarial valuation certificate provided by the insurance company or a separate
certificate from a qualified actuary is required to be obtained for determination of

actuarial liability

In the case of defined benefit schemes covered under Group Gratuity or other defined

benefit scheme with an insurance company where the actuarial risk and investment risk

have not been transferred from the enterprise, the actuarial valuation certificate provided
by the insurance company can be relied upon by the enterprise. However, the enterprise

should ensure that such actuarial valuation has been carried out by a qualified actuary in