Karnataka Notifies Compulsory Gratuity Insurance Rules 2024

On 10th January 2024, the Karnataka government issued the Karnataka Compulsory Gratuity Insurance Rules, 2024 This article explores the key provisions of these rules, including compulsory insurance, registration requirements, payments, and conditions for approved gratuity funds. The following are the main points of the notified rules:

Compulsory insurance

The insurance policy can be obtained from any insurance company incorporated under applicable law for insurance companies.

Existing companies have been provided a timeline of sixty days to obtain such insurance policy (i.e., till 10 March 2024). New employers are required to obtain such insurance within a period of thirty days from the date on which the Rules become applicable to the establishment

Registration Requirements

Employer is required to submit an application to get the establishment registered with the Controlling Authority in the prescribed format, within thirty days from the date of obtaining insurance. Further, whenever there is a change in the employees insured or policies or any other pertinent information, the employer is required to furnish the details to the Controlling Authority.

Payments and Intimation

Employer is required to ensure that the payment of premium to the insurance company is made on a timely basis (before lapse of the policy), renewal of the insurance is done periodically the same is intimated to the Controlling Authority within fifteen days from renewal.

Formation of Approved Gratuity Fund

An employer who has already established an approved gratuity fund OR has employed 500 or more persons may opt to continue / adopt such arrangement. Such an employer is required to submit an application in a prescribed form and is required to ensure that the approved gratuity fund covers the entire liability of all the employees of the establishment.

Conditions for Approved Gratuity Trust

The Rules also prescribe the following key aspects in relation to the Gratuity Trust for it to qualify as Approved Gratuity Fund (Rule 7 of the Rules):

• Employer to maintain the Gratuity Trust as an irrevocable trust.
• Gratuity Trust should have 5 but not equal number of representatives of the employer and employees
• Gratuity Trust should be registered with the authority notified under Indian Trusts Act, 1882 or any other applicable law and also ensure compliance with provisions of Income Tax Act, 1961 and any other applicable law.
• Gratuity Trust shall be managed privately OR by the insurance company OR jointly by paying the calculated amount to the approved Gratuity Trust fund periodically.
• Where an employer has obtained a group gratuity scheme from an insurance company, the same should be approved under Part C of the Fourth Schedule to the Income-tax Act.
• For privately managed Gratuity Trust, investment of funds by the Gratuity Trust shall be in accordance with the Investment Pattern prescribed in the Income-tax Act.
• The gratuity funds are totally protected and the outflow shall be only to eligible employees at the time of their exit from service. Money shall not be withdrawn by employer or by the Gratuity Trust for any purpose other than the payment of gratuity to eligible employees.
• Bye-laws should have detailed procedures on claim and release of the calculated amount of gratuity to eligible employees.
• Gratuity Trust is required to adhere to Indian accounting standard 15 on Employee Benefits.
• The Board of Trustees of the Gratuity Trust shall send discharge letter and advise insurance company or make arrangement of payment of gratuity as per the scheme at the time of exit of an employee.
• The Gratuity Trust and the insurance company are jointly and severally responsible for fulfilment of liabilities under the Act.

APKG Comments

• Now every organization with more than 10 employees is required to comply with above rules.
• Even if the company makes the insurance premium payment, the same is disallowed under section 43(b)
• So now as per our opinion it is mandatory to form the gratuity trust in order to take the benefits of contribution made under section section 36 (1)(v) of the Income Tax Act, 1961.

Conclusion: The Karnataka Compulsory Gratuity Insurance Rules 2024 establish stringent guidelines for employers, making compulsory gratuity insurance mandatory. This move necessitates compliance from organizations, impacting premium payment deductions and emphasizing the formation of gratuity trusts for optimal benefits.

More details about the formation of approved group gratuity trust can be found on our another article on formation of approved group gratuity trust on below link.

https://taxguru.in/corporate-law/approved-gratuity-trust-benefits-formation-compliance.html

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