Gratuity Trust Management – Day-to-Day Administration of Approved Gratuity Funds

Q: What are the key ongoing obligations of a gratuity trustee board?

Rule 107-compliant investments, claim processing, annual actuarial valuation review, trust accounting, CIT annual returns, trustee meetings, and reporting of significant changes to the CIT.

Q: How often must a gratuity trust actuarial valuation be done?

Annually under AS-15 (Revised) or IndAS 19 using the Projected Unit Credit method — covering DBO, annual service cost, interest cost, and actuarial gains and losses.

Q: How is gratuity calculated for payment from the trust?

15 days' last drawn salary (basic + DA) x completed years of service / 26. Maximum income tax exemption in the employee's hands is Rs 20 lakh under Section 10(10).

Q: What happens if the trust corpus is insufficient to pay a gratuity claim?

The employer must make a special contribution to fund the shortfall. Regular actuarial valuations and proactive contribution advisory prevent under-funding situations.

Q: Can gratuity trust assets be invested in equity?

No. Rule 107 prescribes permissible categories — minimum 25% in Government and approved securities, balance in permissible debt instruments. Direct equity is not permitted.

Professional Trust Administration, Actuarial Valuation, Claim Processing, and Regulatory Compliance for Employer-Managed Gratuity Funds

Once an approved gratuity fund is constituted and operational, the trustee board is responsible for its ongoing governance and compliance. This includes conducting periodic trustee meetings, reviewing and approving investment decisions within the limits prescribed by Rule 107 of the Fourth Schedule, processing employee gratuity claim payments, maintaining accurate fund accounts, coordinating annual actuarial valuations under AS-15 (Revised) or IndAS 19, and filing annual returns with the Commissioner of Income Tax. For most employers, this ongoing administrative load is best managed with specialist support — given the intersection of labour law, income tax, actuarial science, and investment compliance.

Our gratuity trust management services provide a comprehensive outsourced administration model that enables the trustee board to fulfil all its governance obligations without internal administrative burden. This service connects with our annual compliance, group trust compliance, and investment support services.

Our Gratuity Trust Management Services

Trustee Meeting Administration

Agenda preparation, notice issuance, meeting coordination, minutes drafting, and resolution documentation for quarterly and annual trustee board meetings — ensuring governance continuity.

Annual Actuarial Valuation

Coordination with the appointed actuary for annual actuarial valuation under AS-15 (Revised) or IndAS 19 — Projected Unit Credit (PUC) method — covering defined benefit obligation (DBO), annual service cost, and plan asset reconciliation.

Gratuity Claim Processing

End-to-end gratuity claim management — employee eligibility verification under the Payment of Gratuity Act, gratuity computation, trustee approval, and payment disbursement to eligible employees on retirement, resignation, or death.

Trust Fund Accounting

Maintenance of trust-level accounts — contribution receipts, investment transactions, income accruals, claim payments, and preparation of annual trust financial statements for audit and CIT filing.

Employee Data Management

Maintenance of the employee master register underlying the gratuity trust — accession and separation tracking, salary update integration, and data quality management for accurate actuarial valuation.

Regulatory Return Filing

Filing of annual returns with the CIT, maintenance of investment schedules, and coordination of all annual compliance filings required under the Fourth Schedule.

Benefits of Professional Gratuity Trust Management

Ensures governance continuity — professional administration prevents missed trustee meetings, filing deadlines, and compliance lapses that can trigger CIT objections or loss of approved status
Accurate actuarial valuations enable precise annual contribution calculation — preventing over-contribution (excess of Section 36(1)(v) limit) or under-funding of the gratuity liability
Timely gratuity claim payments satisfy employer obligations under the Payment of Gratuity Act — avoiding interest and penalty under Section 7(3A) of the PGA
Clean, auditable fund accounts with clear contribution, income, and payment trails protect trustees from personal liability in the event of a dispute or regulatory inquiry
Integrated employee data management ensures every eligible employee is captured in the actuarial valuation — preventing under-reporting of liabilities
Specialist support reduces the administrative burden on the internal HR and finance team — while maintaining the trustee board's oversight and control

Frequently Asked Questions

What are the key ongoing obligations of a gratuity trustee board?

The trustee board is responsible for: investing the trust corpus in compliance with Rule 107 of the Fourth Schedule; approving and processing gratuity claims; reviewing and accepting annual actuarial valuations; maintaining accurate trust accounts and records; filing annual returns with the CIT; convening regular trustee meetings; and reporting significant changes (trustee changes, deed amendments) to the CIT. Personal liability of trustees for breach of trust obligations makes professional governance support essential.

How often must a gratuity trust actuarial valuation be done?

The actuarial valuation of the gratuity trust should be conducted annually under the accounting standards applicable to the employer — AS-15 (Revised) for companies following Indian GAAP, or IndAS 19 for companies under the Indian Accounting Standards framework. The actuary uses the Projected Unit Credit (PUC) method to determine the Defined Benefit Obligation (DBO), annual service cost, interest cost, and actuarial gains and losses — all of which are required for employer financial statement disclosures and contribution determination.

How is gratuity calculated for payment from the trust?

Gratuity is calculated under the Payment of Gratuity Act formula: 15 days' last drawn salary (basic plus DA) multiplied by the number of completed years of service (rounded up for six months and above), divided by 26. For employees covered under a bipartite settlement or service rules providing higher gratuity, the trust deed may provide for payment of the higher amount. The maximum gratuity exempt from income tax in the hands of the employee is Rs 20 lakh under Section 10(10) of the IT Act.

What happens if the trust corpus is insufficient to pay a gratuity claim?

If the trust corpus is insufficient to meet a gratuity payment at the time of a claim, the employer is obligated to make a special contribution to the trust to fund the shortfall. This typically occurs when the trust is under-funded relative to the actuarial liability — which can result from inadequate annual contributions, poor investment returns, or a significant unexpected exit event. Our actuarial valuation and contribution advisory services are designed to prevent funding shortfalls through proactive liability monitoring.

Can gratuity trust assets be invested in equity?

Rule 107 under the Fourth Schedule to the IT Act prescribes the permissible investment categories for approved gratuity funds. A minimum percentage (typically 25%) of the fund must be invested in Government of India securities and other approved securities. The balance may be invested in permissible debt instruments including bonds of public sector undertakings, banks, and financial institutions. Direct equity investment is not a permissible investment category for approved gratuity funds.

Let Us Manage Your Gratuity Trust

Professional trust administration, actuarial coordination, and compliance management for approved gratuity funds.