Query: For a charitable trust registered under FCRA and holding valid 12A and 80G registrations, is it mandatory to establish a separate Gratuity Trust to manage the gratuity fund under the applicable law, or can the trust directly procure a gratuity insurance policy from an insurance company? Further, even for procuring a gratuity insurance policy, is it necessary to first establish a separate gratuity trust? If a gratuity trust is required, would it require separate registration and approval from the Commissioner/Principal Commissioner of Income Tax (CIT/PCIT)?
Thanks for your query Shoyab.
a. A 12A charitable trust being a tax-exempt entity need not create a separate gratuity fund/trust. The requirement of separate fund as per Section 36(1)(v) is to get tax deduction for contribution to an approved gratuity fund for normal entities, not tax exempt entities.
b. the new SS code makes it mandatory to get insurance of gratuity liability. Therefore, you would have to approach an insurance service provider mandatorily and get a group gratuity policy. Please inform the insurance company that you are tax exempt and therefore they will issue the policy in your name without requirement for a separate fund/trust.
c. an NGO within the purview of gratuity will also need to get itself registered for gratuity with the competent authority with proof of insurance as per SS code.
d. Fixed term employees (FTEs) with fixed end date for employment contracts are eligible for gratuity with one year continuous service as per SS code. Employees with no end date in their employment contracts will be eligible for gratuity with 5-year continuous service as was the case in Payment of Gratuity Act 1972.
CS Sharad Bhargava
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Thanks for sharing clarity. Could you clarify more that organisations that depend completely on donations – how do these organisations manage this additional cost?