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GRATUITY FUND ESTABLISHMENT FOR CPRL
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- The company was incorporated in the year
1996 and there after has been conducting business
since that year.
- The company is fulfilling its gratuity liability
by creating a reserve in its books of accounts.
However the company has not earmarked funds
separately for payment of gratuity.
- The company has to comply with the Gratuity
Act since its inception although the liability
of the company arises after a period of 5 years.
The compliance should be done since inception
of the company due to the following reasons.
(a) If the company incurs losses it shall not
be able to keep funds to service its gratuity
liability out of the existing resources for
the employees at the time of leaving services
after 5.
(b)
It is not possible to accrue the liability in
the sixth year for the earlier 5 years, as the
company may be short of funds.
- The ideal situation would have been that
we would have kept our gratuity money separately
each year since the year of its Inception.
- Any company can fulfill its gratuity obligation
by taking it out of the business in 2 ways.
These ways are:
(a) Make reserve in books of accounts and
pay gratuity dues.
(b) Make a separate Gratuity trust and meet
its obligation by paying gratuity dues
to the trust. The trust in turn shall settle
the gratuity claims.
- In view of the existing losses of our company
and the fact that gratuity dues of rupees
---- lacs have not been kept separately in
bank it shall be appropriate to open a trust
and keep the funds in it.
- The gratuity trust can be managed in 2
ways. The trust can be managed by LIC or
the other way is to manage the trust internally
by the company.
- For formation of trust a trust deed has
to be written, approval has to be taken from
commissioner of income tax and subsequently
policy has to be taken from LIC. In case
the funds are managed in house policy from
LIC shall not be required. The trust if
managed in house shall make investments in
a manner similar to the PF trust. The claims
of PF have to be settled from the trust.
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