Indian and Multinational Companies form Gratuity Trust in terms of Part C of Fourth Schedule of IT Act, 1961 for getting tax benefits available under Section 36 (1) (v) & Section 10 (25) (iv) of the Income Tax Act, 1961. These 2 Tax Benefits Are Not Available To Companies, If They Make The Provision Of Gratuity Liability In Balance Sheet At The End Of Each Financial Year Based On An Actuarial Report In Compliance Of As 15 (Revised 2005) & Ind As 19 As Per Requirement Of Companies Act, 2013.
1. The Process of Formation of An Approved Registered Gratuity Trust starts with getting an Actuarial Valuation Certification/Report from Actuary which determines the Initial contribution to be made by the Company into the Gratuity Trust. The process of preparation of the inputs for actuarial valuation certification/report for initial contribution requires in-depth knowledge of various rules and regulation. The preparation of inputs for the Actuarial Valuation include following steps:
2. Once the Actuarial Valuation Certification/Report is prepared then Initial Amount is available with the Organization then we provide them analysis of report and advisory for Initial Contribution to be made in Gratuity Trust.
3. Once the Management of Company give nod for Initial Contribution to be made the Management pass a board resolution to create a Gratuity Trust and Appoint at-least 2 trustees as per rules of Income Tax Rules, 1962. An Authorization Letter may be issued by the Management for Formation of An Approved & Registered Gratuity Trust to the Gratuity Trust Fund Consultant to outsource the process of setting up the An Approved and Registered Gratuity Trust.
4. Once the Board Resolution is passed and 2 trustees are appointed by the Management of the company then the process continue with the following steps: –
5. Once the Approval from the Income Tax Department is received then Registered Gratuity Trust becomes an Approved Gratuity Trust until it continues to satisfies the conditions specified in the Part C of fourth Schedule of Income Tax Act, 1961.
6. Company gets Tax Benefits for Contributions made into An Approved and Registered Gratuity Trust as per Section 36 (1) (v) until and unless Approval from the Income Tax Department (CIT) is Valid.
7. Approval for the Gratuity Trust becomes void, if Approval is not received from the Income Tax Department (CIT) in following cases: –
8. An Approved Gratuity Trust is a separate entity in the eyes of Income Tax Department; hence Annual Audit of Gratuity Trust is done and ITR is filed. Cost of Audit is borne by the Company.
9. Actuarial Report under Gratuity Plan from Actuary is needed by the Company at the end of each Financial Year for compliance AS 15 (Revised 2005) & Ind AS 19 and assessment of Annual Contribution to be made by the Company into the Approved Gratuity Trust for getting tax benefits available under Section 36 (1) (v).
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