Steps for Formation of Gratuity Trust

► Date : Jun 01, 2022

Steps for Formation of Gratuity Trust

Gratuity Act 1972


1. Gratuity benefits are governed by "The Payment of Gratuity Act 1972" and paid by the Company to an employee in addition to his salary on exit from the company. Gratuity being an important retirement benefit to employees in the Indian context, is relevant for all organizations (i.e. MNC’s, Schools and Other business entities) having more than 10 employees. Since an employee sacrifices prime time of his life for the development,

prosperity and betterment of his employer, employer pays his employee gratuity as a graciousness or gift to him, when he no longer serves him. gratuity is a statutory obligation on the shoulders of the employer to make the payment of Gratuity to his employees as soon as it becomes payable (Refer Sub Section (2) of Section 7 to the Act).

Compliance of this act is applicable to all organizations such as a factory, mine, oilfield, port, railways, plantation, shops, establishments or Educational institution having 10 or more employees on any day in the preceding 12 months.

Conditions for payment of Gratuity

Gratuity is payable to an employee on exit from service after he has rendered continuous service for not less than five years:

a. On his superannuation

b. On his resignation

c. On his death or disablement due to injury or disease.

In the case of (c) vesting condition of 5 years does not apply

Formation of An Approved & Registered Gratuity Trust

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.

Formation of Gratuity Trust

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:

  • Preparation of Employees data for eligible Employees/Management Personnel to be included in the trust as per Income Tax Rules, 1962 and Accounting Standard 15 (Revised 2005) & IndAS19.
  • Finalizing the Financial (i.e. Salary Escalation) and Demographic Assumptions (i.e. Attrition Rate, Retirement Age, Mortality Rate, etc.) as per Past Trend of the
  • Company and Accounting Standard 15 (Revised 2005) & IndAS19.
  • Preparation of Plan Provision for Gratuity as per Payment of Gratuity Act 1972 (Amended).

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: –

  • Gratuity Trust Deed and Trust Rules executed and Registered with the Sub Registrar of the Jurisdiction of the Company.
  • Once the Trust Deed and Trust Rules of the Gratuity Trust are registered then Trustees apply for PAN and TAN of the Gratuity Trust.
  • After getting the PAN and TAN of the Registered Gratuity Trust then an Bank
  • Account is opened in a Scheduled Bank as mentioned in Rules of the Income Tax Rules, 1962.
  • Once the Bank Account of the Registered Gratuity Trust is Formed then Company pay the Initial Contribution into the Bank Account by Cheque or NEFT/RTGS.
  • On receipt of Initial Contribution from the Company in the Registered Gratuity Trust, Trustees decides to Invest this amount into a Group Gratuity Scheme of Insurer (LIC, SBI, KOTAK, RELIANCE, HDFC, etc. etc.) or they invest the money as per rules of Income Tax Rules, 1962.
  • Once the Investment is done then trustees of the registered Gratuity Trust apply for Approval of Gratuity Trust in Terms of Part C of Fourth Schedule of the Income Tax Act, 1961 with following documents:
  • Board Resolution of Management/Company

  • Registered Gratuity Trust Deed and Trust Rules

  • PAN and TAN of Trust Deed

  • Bank Account Details of Gratuity Trust

  • Premium Receipt of Investment made by the Trustees into Group Gratuity Scheme of Insurer (LIC, SBI, KOTAK, RELIANCE, HDFC, etc.) or Investment Portfolio of Investment as per rules of Income Tax Rules, 1962.

  • Application to CIT for Approval and other relevant documents.

5. Once the Approval from the Income Tax Department is received then Registered Gratuity Trust becomes an Approved Gratuity Trust until it continues to satisfy the conditions specified in Part C of the 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 the following cases:

  • Variation is made in Original Trust Deed.
  • Variation is made in Original Trust Rules.
  • Appointment of New Trustees.
  • Variation in Original Benefits of Gratuity given by the Company in Trust Rules (i.e. Change in Ceiling Limit, Change in Vesting Condition for Gratuity Benefits, Change in Benefit Formula, etc.)
  • Changes in Insurer of Group Gratuity Scheme. Merger & De-merger of Company
  • Winding up of Group Gratuity Scheme.

8. An Approved Gratuity Trust is a separate entity in the eyes of the 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).

Rajesh Kumar

The author provides end to end consultancy and support services relating to formation of Gratuity Trust, investment of trust money, drafting of trust deeds & board resolutions , amendment in trust deed  and winding up of trust. He can be reached at


Name : Rajesh kumar

Location:NEW DELHI
View Profile

► Tags : #GratuityTrust #Gratuity #TaxBenefit #IncomeTax #GratuityAct1972

Leave a Reply

Jxdboi(10 hours Ago)

naprosyn 250mg generic omnicef pills prevacid 15mg tablet

Vgicwp(1 day Ago)

order lanoxin 250mg generic buy lanoxin sale molnunat 200mg without prescription

Ongyuh(3 days Ago)

buy acetazolamide 250mg pill azathioprine pills azathioprine 25mg tablet

Fhcmon(3 days Ago)

buy cheap carvedilol purchase carvedilol generic buy generic chloroquine over the counter

Friwxg(5 days Ago)

purchase clobetasol online order amiodarone 100mg pills cordarone 200mg us

Airnay(6 days Ago)

order benicar 10mg generic purchase olmesartan online depakote 500mg for sale

Cupsmg(6 days Ago)

buy asacol 800mg pill order astelin 10ml generic brand irbesartan 300mg

Fcbqjm(1 week Ago)

order vardenafil 20mg generic buy hydroxychloroquine without prescription plaquenil 400mg ca

Olnhqv(1 week Ago)

altace 10mg cheap order arcoxia 120mg pill buy etoricoxib for sale

Ohmlat(1 week Ago)

levitra order plaquenil 400mg price buy plaquenil paypal

Oopjrv(1 week Ago)

purchase furosemide online buy lasix 40mg without prescription ventolin inhalator brand

Qgvzom(1 week Ago)

ivermectin generic cream order deltasone 5mg deltasone 5mg pills

Rybzzh(1 week Ago)

azipro 250mg generic order omnacortil 10mg generic gabapentin generic

Mjixpr(2 weeks Ago)

tadalafil brand name cialis professional tadalafil 5mg generic

Xprxsg(2 weeks Ago)

order isotretinoin 20mg sale cheap amoxil generic buy zithromax

Wjpuru(2 weeks Ago)

brand leflunomide 20mg order leflunomide 20mg pill order azulfidine without prescription

Kxifto(2 weeks Ago)

purchase bimatoprost pills cost desyrel 100mg order desyrel 100mg pill

Gqvikg(2 weeks Ago)

buy generic amoxicillin arimidex 1mg tablet clarithromycin 500mg us

Vyvxwa(3 weeks Ago)

nolvadex pill cefuroxime 250mg without prescription oral ceftin 500mg

Sgqgmm(3 weeks Ago)

metronidazole 400mg brand buy bactrim for sale cephalexin brand

Fnhskq(3 weeks Ago)

fluconazole canada buy generic fluconazole 200mg buy generic ciprofloxacin

Iylbcq(3 weeks Ago)

cost estrace estrace 2mg sale generic minipress 2mg

Mfxwhg(3 weeks Ago)

order cefadroxil without prescription order lamivudine pills propecia price

Qdlvbg(3 weeks Ago)

tadalafil 20mg oral cialis online viagra 50mg oral

Aqhshz(4 weeks Ago)

tegretol 200mg over the counter purchase ciprofloxacin without prescription lincocin price

Hswhcd(4 weeks Ago)

simvastatin online buy buy zocor tablets purchase viagra pills

Mftede(1 month Ago)

progesterone 100mg us buy generic zyprexa online buy zyprexa 10mg online cheap

Bdclrb(1 month Ago)

combivent generic order generic decadron 0,5 mg cost linezolid 600mg

Gciumj(1 month Ago)

betnovate 20gm for sale buy anafranil 50mg oral itraconazole 100mg

Ayngyp(1 month Ago)

duloxetine over the counter nootropil cheap nootropil medication

Vjmcav(1 month Ago)

purchase plavix online order generic ketoconazole 200mg ketoconazole pills

Inistb(1 month Ago)

purchase zantac without prescription purchase celecoxib generic buy celecoxib cheap

Oxeoxy(1 month Ago)

toradol 10mg generic propranolol canada inderal price

Pgetaf(1 month Ago)

crestor us buy domperidone 10mg pills buy motilium generic

Zubcyk(1 month Ago)

cozaar price generic topamax 100mg order topamax 100mg pills

Zfpsqc(1 month Ago)

orlistat pills orlistat brand allopurinol 100mg usa

Hsleda(1 month Ago)

prinivil over the counter how to get omeprazole without a prescription metoprolol generic

Revnvt(1 month Ago)

buy praziquantel 600mg sale biltricide without prescription buy periactin without prescription

Rgxfkc(1 month Ago)

glycomet usa metformin medication oral amlodipine

Nfdilj(1 month Ago)

albenza cheap buy generic aripiprazole 20mg cheap provera 5mg

Aiukcv(1 month Ago)

doxycycline sale doxycycline uk augmentin 625mg oral

Ymudbl(1 month Ago)

order prednisolone 5mg without prescription order gabapentin 600mg for sale furosemide where to buy

Okxrjc(1 month Ago)

order accutane 10mg online cheap amoxil 500mg pill azithromycin 250mg us

Tzfanc(1 month Ago)

letrozole 2.5mg pills viagra buy online sildenafil 50mg for sale

Blysjq(1 month Ago)

atorvastatin 20mg tablet sildenafil ca buy generic viagra 100mg

Bblkxd(1 month Ago)

buy generic escitalopram for sale buy prozac paypal revia 50 mg price

Wzfamb(1 month Ago)

cenforce 50mg tablet cenforce over the counter glucophage usa

Ydjvbn(1 month Ago)

buy zyrtec 5mg pills cetirizine order sertraline 50mg price

Cjfuvl(1 month Ago)

purchase levofloxacin pills levofloxacin 500mg pills brand bupropion 150mg

Mjlsbt(2 months Ago)

coumadin cost order allopurinol 300mg sale buy zyloprim 100mg pills

Opinion Poll

Do you think there should be incentive for filing of early return instead of penalty for late return

Thought of the day


If you can't do great things, do small things in a great way - Napolean Hill

Upcoming Events

No Data