7/2/22, 4:34 PM Employees Group Gratuity Scheme – MK Finserve

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Employees Group
Life Insurance
Health Insurance

Gratuity Scheme
United India Insurance
Star Health Insurance
Bajaj Insurance
Motor Insurance
Bajaj Allianz Insurance Employees Group Gratuity Scheme:

United India Insurance The payment of Gratuity to the employees is a statutory liability imposed on the
Mutual Funds employers through an act of the Government called Gratuity Act 1972.

United India Insurance The gratuity liability of the employer always increases year after year as the number
of years of service of the employees and their salary increase.
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Employees Group Gratuity Scheme – MK Finserve
y
Deposits
Financial Planning Every employee who has completed 5 years of service on their exit from the
company is entitled to enjoy the benefit of Gratuity act subject to maximum of Rs.
Financial 10,00,000/-.    The exit of the employees may be due to the following reasons.
Corporate Schemes
1. Retirement
Group Superannuation 2. Resignation
 Employees Group 3. Unfortunate Death Or Disablement
Gratuity Scheme
Employees Group The condition of 5 years of service is however not insisted in the event of the
Medical Insurance death or permanent disablement of the employee and the Gratuity

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Employees Group commitment has to be honored.
Personal Accidental
Insurance The Gratuity payable to an Employee is calculated using the following formula.

GRATUITY =   Terminal Salary x No. of years of Service x 15 / 26

From the above formula it is obvious that Gratuity liability of an Employer increases
Need Help ? with completion of every year of service and with the grant of every increment.
Please feel free to
contact us. We will
Over a period of time the Gratuity liability of the company shall accrue and becomes
get back to you with very high. Some organizations who have not planned their future commitment find it
1-2 business days. Or very difficult to meet the liability at one time.
just call us now
The Group Gratuity Scheme of LIC helps the employers to plan their future Gratuity
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commitment right from the beginning.
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[email protected]
.in
Group Gratuity scheme is nothing but managing fund meant for Gratuity payment.
The contribution made by the employers towards the Group Gratuity Scheme
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bj t t i f 8 1/3% f th t t l l l i ll d b i 2/9
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subject to maximum of 8 1/3% of the total annual salary is allowed as business
expenses during the financial year under Section 36 (I)(V) of Income Tax Act.

The amount of gratuity received by an employee at the time his exit is also exempted
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from income tax up to Rs. 10,00,000/- under section 10(10)(III) of Income Tax Act

The Employer has to set up an irrevocable trust for operation of the scheme and
make contribution to the trust every year. The payment made by the employer to the
trust is eligible for deduction in profit computation. The trust in turn shall purchase
Group Gratuity Scheme from LIC of India. LIC of India will provide all technical
assistance and guidance in the formation of trust.

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There is a provision to cover past service Gratuity liability also.

The initial contribution to cover the past service liability of the employer shall be
made in one lump sum or in annual installments not exceeding 5 in number together
with the annual contributions for the future Gratuity liabilities.

The initial and annual contribution made by the employer is accumulated as Gratuity
fund and is managed by LIC of India as a running account in the name of the trust.

All Gratuity liability of the company will be met out of this Gratuity fund in full and will
be paid back to the trust for disbursement as and when the need arises.

LIC is paying interest for the accrued fund every year at the rate ranging from 7.00%
to 8.00% and a statement featuring all transaction is given to the trust every year.
The interest earned by the fund is exempted from income tax under section 10(25)
(IV) of income tax act.

Built In Insurance Cover:

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u t su a Employees
ce Co eGroup
: Gratuity Scheme – MK Finserve

Very important aspect of this scheme is the Built in Insurance cover. The built in
insurance cover assures the employees and their family the full service gratuity in
case of death of an employee during his service. This benefit will increase the morale
of the employees and will enhance their loyalty towards the organization.

This can be illustrated with the following example.

An employee named X joins service at the age of 25 years.

Retirement age                                                           : 58 years

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Assuming that the employee X dies in an accident or due to any other reason at the
age of 30 years.                           

Left out service                                                           : 28 years.

Salary at the time of death                                       : Rs.10, 000/- month

Gratuity actually payable to the employee            :    10000 x 5 x 15 / 26 

:  Rs.28,846 /-

Under the Group Gratuity scheme

with this built in insurance

cover LIC will pay        :10000 x 33 x 15 / 26

: Rs.1, 90, 385 /-

Though LIC makes a payment of Rs.1,90,385 to the trust, LIC will deduct only
Rs.28,846/- from  the  running  account  of  the  gratuity  fund  managed  in  the 
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name  of the trust. Balance of Rs.1, 61, 539/- is met out of LIC’s risk insurance fund.

To meet this built in insurance cover LIC charges a small amount as risk premium
which is collected from the employer along with the annual contribution. The
employee’s family in his absence is benefited by this unique facility.

The following are the advantages for the employers:

1.    The employer manages the fund through LIC with an attractive yield  and do
not incur any expenses on fund management.
2. Tax Concession (Contribution is treated as expenditure of the company   under

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Section 36(1)(V) of I.T Act.)
3. Provision for better Gratuity facility through built-in insurance cover.
4. Employer can prefer the claims as and when the amount is to be settled.
5.  Every year LIC value the liability by actuarial valuation, and do not charge any
fees for this valuation, and inform employer the contribution payable.
6. As regards the employee leaving before 5 years, the money will remain in the
fund and the same is automatically adjusted, in the next years’ valuation, 
towards the contribution.

I am enclosing the details of the data required from your institution for preparing
the quotation mentioning the premium payable to cover the past service Gratuity,
the future Gratuity commitment and the risk premium.   

We also have other schemes like Group Insurance scheme, Group Superannuation
scheme and Group Savings linked insurance scheme for the benefit of both the
Employer and Employees.

I request you for an appointment to discuss about various Group Insurance

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7/2/22, 4:34 PM Employees Group Gratuity Scheme – MK Finserve
I request you for an appointment to discuss about various Group Insurance
products of LIC at any time of your choice.

Yours Sincerely,

(M.Karunanidhi B.Sc., FChFP)

Chartered Financial Practitioner

Mobile No. 98430 – 65776

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Employees Group Gratuity Scheme – New Gratuity Plan

1. LIC has introduced this New Gratuity Plan in order to comply with the Insurance
Regulator’s New Guidelines for insurers
2. To meet the requirements of New Joiners of Employees Gratuity Fund

Features of New Group Gratuity Cash Accumulation Plan (UIN 512N281V01)

1. There are 3 different types of Interest Account in the new scheme viz. Minimum
Floor Rate (MFR), Additional Interest Rate (AIR) and Residual Addition

MFR – is fixed at 0.5% p.a. – Not policy specific

AIR – is declared in advance for each quarter, the corporation shall also declared
non zero positive Additional Interest Rate (AIR) on the policy account at the
beginning of each financial quarter starting from 1st April, July, October and
January every year.
This AIR is guaranteed for that financial quarter.
For the financial quarter during which this plan is launched i e for the period
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For the financial quarter during which this plan is launched i.e. for the period
from 23rd October 2013 to 31st December 2013, the AIR shall be 8.9% per annum
effective
Residual Addition (RA) – Policy specific, declared at each of the policy year after
fice policy year duration

1. Life Cover Sum Assured (LCSA) – existing process will continue

Premium (Mortality Charges) of life cover – existing practice of giving quote on

Annual Renewal Date (ARD) will continue. However under New Plan, now
premium will be payable on monthly basis for the members covered. Premium

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will be realized from Running Account (policy account)

1. Apart from Life Cover premium (Mortality Charges) and service tax there on,
policy administarion charges (PAC) will be recovered from the running account
(policy account). The PAC is fixed @ 15 paisa per thousand sum assured per
annum. Recovery will be made along with premium on monthly basis
2. As per IRDA new guidelines, the Rate of Risk premium is brought down
drastically.
3. Fund Management Charge (FMC) – Depends on size of the fund and is calculated
on slab basis

Size of policy Account Value of the scheme  Fund Management Charge (FMC) p.a

Initial amount up to Rs. 1 Crore 0.50%

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On subsequent amount above 1 Crore and 0.45%

less than or equal to 5 Crores

On subsequent amount above 5 Crores 0.40%

but less than or equal to 25 Crores

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Market Value Adjustment (MVA) – Bulk exit and Wholesale surrender will attract this
charge. The rate / amount will be given by Corporate office

Treatment of policies under existing Group Gratuity Cash Accumulation Scheme

All policies under existing Group gratuity Cash Accumulation scheme at the time of
renewal shall be given an option to switch over to LIC’s New Group Gratuity Cash
Accumulation Plan. Those group policies which do not switch over to the new plan
will be given the following options.

1. May continue to be renewed under the old policy

2. Shall be closed to new members
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2. Shall be closed to new members

Specific written consent is required to continue in the old policy as detailed in

the enclosed letter.

             

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