Group gratuity scheme

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Group gratuity scheme

Group Gratuity Scheme

Enables to form a trustworthy relationship with employees

Any organization which has been operating with a minimum number of 10 employees since the past financial year becomes liable to pay gratuity to those who have completed five years of continuous service; upon retirement or leaving the job. A gratuity is a mandatory lump sum amount to be given by the employer to workers under the Gratuity Act, 1972.

Every employer bears an obligation to each of his employees for his dedicated years of service in the organization. The gratuity is, thus, a benefit to be given when the employee retires or shifts job. It is a defined benefit plan, that is, an employee has the right to know the gratuity amount beforehand. The amount is calculated taking into account the last drawn salary and the number of years of service.

A gratuity scheme becomes mandatory automatically but, it is also necessary to be availed by any institution because of the uncertain market conditions and the resulting effects on the organization’s business. If an employer does not avail of a group gratuity scheme he may not be able to fulfill his liability towards his workers in the form of the lump sum amount. In the absence of this scheme, he may have to forego a chunk of his savings and hamper his business functions to immediately pay up the gratuity to a retiring worker.

Thus, a group gratuity scheme is recommended to save the employer from any such financial worries in the future. This scheme will enable the employer to deposit fixed amounts at any time of the year to save up for the liability on account of the employees in the future. Apart from this basic benefit, a group gratuity scheme comes with several other benefits for the institutions that avail it.

The most significant of these benefits are from the taxation point of view. Whatever amount of money is invested by the organization in this scheme is considered as a business expense. So, it enables the employer to save up by reducing his taxable business income. However, to get this tax benefit, the gratuity must be paid according to the rules prescribed in the scheme.

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