Once a Gratuity Trust is established, various yearly formalities and compliance requirements come into play. This article outlines the key obligations, including accounting entries, auditing procedures, Income Tax Return filing, and the importance of actuarial reports.
Maintenance of Books of Accounts
- Gratuity is accounted as a liability until when the employee is rendering services to the company and it is accounted as an expense when the amount of gratuity is paid.
In the books of Employer:
- For accounting purposes, you need to pass the following entries:
| Sr No. | Transaction | Accounting Entry | Dr/Cr |
| 1 | Making Contribution | Plan Asset A/c | Dr |
| To Bank A/c | Cr | ||
| 2 | Year end entry based on actuary report | Plan Asset A/c | Dr |
| Expense A/c | Dr | ||
| To Other Comprehensive Income | Cr | ||
| To Defined Benefit Obligation | Cr |
In the books of Gratuity Trust:
- For accounting purposes, you need to pass the following entries:
| Sr No. | Transaction | Accounting Entry | Dr/Cr |
| 1 | Receiving contribution | Bank A/c | Dr |
| To Gratuity Fund A/c | Cr | ||
| 2 | Investment entries | Investment A/c | Dr |
| To Bank A/c | Cr | ||
| 3 | Income from Investment | Bank A/c | Dr |
| To Income from Investment A/c | Cr | ||
| 4 | Gratuity payment | Gratuity settlement A/c | Dr |
| To Bank A/c | Cr |
Yearly Auditing of Trust:
- As an Approved Gratuity Trust is a separate entity, so every year auditing of that trust is must.
- Auditors need to check whether financial statements comply with the standards or not.
- For SME companies:- In this case, company need to disclose details as per Clause (I) of Para 120 of AS 15 (2005)
- For non-SME companies:- In this case, company need to disclose details as required for Para 120 of AS 15 (2005)
- Listed companies and NBFC have to disclose details as per IndAS 19.
Income Tax Return Filing of Trust:
- As Approved Gratuity Trust is a separate entity, every year Income Tax Return shall be filed.
- ITR 5 is also applicable on those AOP/BOI on which ITR 7 isn’t applicable and ITR 7 is not applicable so automatically ITR 5 is applicable on Gratuity Trust
- As per Section 144 of the Companies Act 2013, Auditor is not supposed to render actuarial services.
Actuarial Report:
- Every year company need to prepare Actuarial Report stating all the actuarial assumptions, method used to determine discount rate and discount rate.
- For long term employee benefits actuarial valuation is really important.
- Actuarial reports fully compliant with AS 15 & IndAS 19 have following components:-
1. Data:- This is the summary of employee data which company received
2. Assumptions:- The financial and demographic assumptions which company received as actuarial input.
3. Method:- PUC method
4. Results:- Present Value of Obligation, Experience Adjustment,etc
5. Disclosures:- Company must disclose everything as per given paragraph 120 of AS 15 and paragraphs of IndAS 19.
- As per Para 57 of IndAS 19, it encourages but does not require an entity to involve qualified actuary for actuarial report. But for practical reasons, a qualified actuary is requested to prepare actuarial report
FAQs
Q.1 What is the due date for the Income Tax Return filing of Gratuity Trust?
Ans. The due date for ITR filing is 30th July.
Conclusion: Establishing and maintaining a Group Gratuity Trust involves adhering to yearly compliance procedures. From accurate accounting entries to thorough auditing, tax filing, and actuarial reporting, these obligations ensure transparency and compliance with regulatory standards. Understanding these processes is essential for efficient and lawful trust management.
Author Bio
What is section of Audit for auditing of Approved Gratuity Trust under Payment of Gratuity Act or Income Tax Act. If under any of the above Act than what is section