Knowledge Centre

Superannuation Fund & Gratuity Fund (As per Indian Laws)

Every organization today has the responsibility not only to man the various positions with competent and trained personnel but also to provide an environment where its employees can give their best and derive a sense of wellbeing, fulfillment, security and take pride in their continued association with the organization. The Superannuation Fund & Gratuity Fund go a long way to take care of employee’s loyalty and long-term service to their organization. Superannuation Fund arranges for a regular income to the employees after their retirement and the Gratuity Fund recognizes long term service beyond five years by an employee.

 

The main tasks carried out by us Superannuation Fund & Gratuity Fund are:

  • Superannuation & Gratuity Fund Creation, Administration & Management
  • Obtaining Income tax approvals
  • Regulatory Compliances
  • Fund Management with Optimum Investments
  • Employee Wise Records & Accounting
  • Liaison With Various Authorities – Insurance companies
  • Front Ending Audit of Superannuation & Gratuity Fund Records

Superannuation Fund Purpose of the Scheme

The employers can, on the death or retirement from service of certain employees, provide them or their spouse, children or dependents financial security by way of pension through a Superannuation Scheme.

Salient Features of the Scheme

  • Usually,the employer contributes to this Scheme for the management cadre of employees.
  • Pension is provided either to the employee after retirement or to the family after the death of the employee.
  • A Superannuation Trust is created by the employer for the employees who become members of the Trust.
  • This trust needs to be recognized by the Commissioner of Income Tax to avail   tax exemptions / concessions.
  • If the employer is already contributing 12% of employees’ salary to PF Scheme, he can contribute additionally up to 15% of the salary under this scheme.
  • A contribution to such a recognized Trust is an Income Tax deductible expense for the employer and is not considered as a perquisite or income accruing to the    employee.
  • At the time of normal retirement, a member can commute one third of the cumulative balance in his account without being taxed.
  • The Trust can either invest on its own or take a policy from the Life Insurance Corporation (LIC)
  • In case a policy is taken the LIC maintains member wise details based on the data supplied by the Trust.
  • The member gets the pension directly from LIC at the time when it becomes due.
  • The Trust has to maintain accounts and get it audited.
  • All expenses relating the administration of the Trust are borne by the employer

Gratuity Fund

Purpose of the Scheme

Under the Payment of Gratuity Act, 1972, it is the employer’s statutory liability to pay 15 days salary for every completed year of service or part thereof in excess of six month to each of his employees on his exit, after five years of continuous service. The scheme provides for prudent policy of setting aside the gratuity liability to a separate fund and to get tax exemption on the payment.

 

Salient Features of the Scheme

Accordingly, to the Payment of Gratuity Act, Gratuity is payable after an employee has rendered continuous service   of not less than five years on his:

  • Retirement
  • Resignation
  • Death / Disablement (Five years of service not necessary)
  • It is the Employers Statutory liability to pay 15 days salary for every completed year or part thereof in excess of six month of service to each of his employees on   their exit, after five years of continuous service, subject to maximum limit of Rs. 20 lakhs.
  • Indian and International accounting standards require provision of gratuity in the financial statements of the establishment from the first year of incorporation.
  • Provision for Gratuity in the accounts, unless paid to an approved trust, does not qualify as a tax-deductible expense.

As a prudent policy the Indian corporate provides for gratuity trust in order to set aside each year the gratuity liability to a separate fund.

Professional Tax Act (State Specific)

Professional Tax or employment tax is a state-based tax. It is allowed as a deduction from the gross income for computing the tax.

P Tax is calculated as per the slab which varies from state to state. Each and every employee receiving pay from either the government or from the private sector is required to pay profession tax as per the state legislation. Recovery and deposit of the P Tax is the responsibility of the employer. The employer is also generally required to contribute P Tax at his own cost once in a year.