It is mandaotry to procure insurance in relation to gratuity to employees (pursuant to s.4A of the Payment of Gratuity 1972 Act)? Is it true? - is this applicable to Karnataka?
Either the employer should obtain insurance as per section 4A or maintain an ‘approved gratuity fund’ (as per sub-clause (2) of section 4A, to assure that this benefit will be promptly provided to the employees. This being a Central Act, the states should ensure the have corresponding rules to adhere with this Parent Act.
Section 4A of the Gratuity Act states as follows:
(1) With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain an insurance in the manner prescribed, for his liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer:
Provided that different dates may be appointed for different establishments or class of establishments or for different areas.
(2) The appropriate Government may, subject to such conditions as may be prescribed, exempt every employer who had already established an approved gratuity fund in respect of his employees and who desires to continue such arrangement and every employer employing five hundred or more persons who establishes an approved gratuity fund in the manner prescribed from the provisions of sub-section (1).
(3) For the purpose of effectively implementing the provisions of this section, every employer shall within such time as may be prescribed get his establishment registered with the controlling authority in the prescribed manner and no employer shall be registered under the provisions of this section unless he has taken an insurance referred to in sub-section (1) or has established an approved gratuity fund referred to in sub-section (2).
(4) The appropriate Government may, by notification, make rules to give effect to the provisions of this section and such rules may provide for the composition of the Board of Trustees of the approved gratuity fund and for the recovery by the controlling authority of the amount of the gratuity payable to an employee from the Life Insurance Corporation of India or any other insurer with whom an insurance has been taken under sub-section (1), or as the case may be, the Board of Trustees of the approved gratuity fund.
(5) Where an employer fails to make any payment by way of premium to the insurance referred to in sub-section (1) or by way of 'contribution to all approved gratuity fund referred to in sub-section (2), he shall be liable to pay the amount of gratuity due under this Act (including interest, if any, for delayed payments) forthwith to the controlling authority.
(6) Whoever contravenes the provisions of sub-section (5) shall be punishable with fine which may extend to ten thousand rupees and in the case of a continuing offence with a further fine which may extend to one thousand rupees for each day during which the offence continues.
Explanation : In this section “approved gratuity fund” shall have the same meaning as in clause (5) of section 2 of the Income-tax Act, 1961 (43 of 1961)].
The intent is to ensure prompt and secured payout of the social security benefit to the employees.
Hope the above helps.
Thanks Bhuvana, this really helps.
Based on above can we conclude, there is no notification / requirement in Karnataka?
It cannot be concluded that way.
The Gratuity Act is the principal Act for which the states frames their rules. The employers have to comply with the Gratuity Act as applicable following the rules of the State.
Does Gratuity applies by default if the no. of employees are more than 10 or should we register in any of the government sites if the company is eligible for gratuity Act in Karnataka?
In India, the payment of gratuity to employees is governed by the Payment of Gratuity Act, 1972. According to the Act, gratuity is applicable to establishments employing 10 or more employees. However, it is important to note that eligibility for gratuity is not automatic solely based on the number of employees. There are certain criteria and conditions that need to be met for an employee to be eligible for gratuity.
To answer your specific question about Karnataka, if your company meets the eligibility criteria for gratuity under the Payment of Gratuity Act, you need to register your establishment with the concerned authorities. In Karnataka, the appropriate authority responsible for implementing the gratuity provisions is the Assistant Commissioner of Labour of the respective jurisdiction.
To register for gratuity in Karnataka, you would need to submit an application along with the necessary documents, such as the employee register, salary register, and other relevant records. The Assistant Commissioner of Labour will verify the details and, upon approval, issue a certificate of registration for gratuity.
It is advisable to consult with a legal professional or labor law expert to ensure compliance with the specific regulations and procedures applicable in Karnataka. They can provide accurate guidance and assistance in registering for gratuity and fulfilling other statutory obligations related to employee benefits.
Concerned jurisdictional Labour office is to be informed in Form A – Notice of opening under Gratuity Act/Rules.
Thanks, Arjun !
I have received the policy. Please share active employees data as well.
Can we say there is no requirement to make provision for Gratuity in financial statements until we obtain Gratuity registration certificate?
It is generally recommended to make provision for gratuity in the financial statements, regardless of whether the gratuity registration certificate has been obtained or not. The provision for gratuity represents the company’s obligation to pay gratuity to its employees in the future, based on their length of service.
While the registration certificate may be a requirement under the Gratuity Act, it does not necessarily dictate whether or not a provision should be made in the financial statements. Making a provision for gratuity helps in presenting a more accurate and reliable financial picture by accounting for the future liability. It also ensures that the company recognizes and plans for its gratuity obligations.
It is important to consult with a qualified accountant or financial advisor who is knowledgeable about the specific regulations and requirements applicable to your jurisdiction and industry. They can provide guidance on the appropriate accounting treatment for gratuity and the implications of obtaining the registration certificate.