Understanding Karnataka Compulsory Gratuity Insurance Rules, 2024

In a significant move to safeguard employee rights and ensure financial security, the Karnataka Government has introduced the Karnataka Compulsory Gratuity Insurance Rules, 2024. This initiative, published on 10 January 2024, on companies registered in Karnataka. Let's delve into the key aspects of these rules and the crucial steps that employers in Bangalore and across Karnataka should take before March 10th.

Obtaining Insurance

Under the new rules, companies can obtain gratuity insurance from the Life Insurance Corporation (LIC) or any other insurance company incorporated under applicable laws. Existing companies must obtain insurance within sixty days (by 10 March 2024), while new employers should secure insurance within thirty days from the date the rules become applicable to their establishment.

Registration with Controlling Authority

Employers are required to submit an application for registration with the Controlling Authority within thirty days of obtaining insurance. Any changes in the insured employees, policies, or other relevant information must be promptly communicated to the Controlling Authority. Upon obtaining gratuity insurance, employers are mandated to initiate the registration process with the Controlling Authority promptly. This involves the submission of an application in the prescribed format within thirty days from the date of obtaining insurance. This crucial step establishes a formal link between the employer, the insurance provider, and the controlling authority, setting the foundation for the administration of gratuity benefits.

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Payments and Renewal

Due diligence is paramount in ensuring timely premium payments to the insurance company. Employers must renew the insurance periodically and intimate the Controlling Authority within fifteen days of renewal to maintain compliance. Ensuring the timely payment of premiums to the insurance company is a critical responsibility for employers. This financial commitment serves as the foundation for the gratuity coverage provided to employees. Employers are required to exercise due diligence in managing the payment process, guaranteeing that premiums are remitted to the insurance company well before the lapse of the policy period.

Recovery of Gratuity

The Controlling Authority holds the power to recover gratuity directly from the insurance provider, streamlining the process and safeguarding employee interests.The Controlling Authority's power to recover gratuity directly from the insurance provider streamlines the entire process. In the event of an employee being eligible for gratuity, this authority can swiftly initiate the recovery process without unnecessary delays or complications.

Incorporation/Continuation of Approved Gratuity Fund

Companies with 500+ employees can choose to incorporate an approved trust fund and if one exists already, they can choose to continue with the same.The approved gratuity fund must cover the entire liability of all employees eligible for gratuity, and employers need to submit an application to ensure compliance in a prescribed form. The application process ensures that the Controlling Authority is informed of the employer's decision to either continue with the existing approved gratuity fund or adopt such an arrangement, demonstrating a commitment to regulatory compliance.

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Conditions for Gratuity Trust

For a Gratuity Trust to qualify as an Approved Gratuity Fund, employers must adhere to specific conditions outlined in Rule 7 of the Rules. These include maintaining the trust as an irrevocable trust, having a balanced representation of employer and employee representatives, and ensuring compliance with relevant laws. The conditions outlined in Rule 7 of the Karnataka Compulsory Gratuity Insurance Rules, 2024, pertaining to the Gratuity Trust, play a pivotal role in ensuring the proper management and compliance of the Approved Gratuity Fund. Let's delve into the key aspects and conditions that employers must adhere to for the Gratuity Trust to qualify as an Approved Gratuity Fund.

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Irrevocable Trust:

Employers are required to maintain the Gratuity Trust as an irrevocable trust. This means that once established, the trust cannot be altered, revoked, or terminated without meeting specific legal conditions. This condition provides stability and assurance to employees regarding the security of their gratuity funds.

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Balanced Representation:

The Gratuity Trust should have a balanced representation, with 5 but not an equal number of representatives from both the employer and employees. This condition ensures a fair and inclusive decision-making process within the trust, considering the interests of both parties involved.

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Registration and Compliance:

The Gratuity Trust must be registered with the authority notified under the Indian Trusts Act, 1882, or any other applicable law. Additionally, compliance with the provisions of the Income Tax Act, 1961, and any other relevant laws is mandatory. This ensures that the trust operates within the legal framework, adhering to tax regulations and other applicable statutes.

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Management Options:

The Gratuity Trust can be managed privately, by the insurance company, or jointly by periodically paying the calculated amount to the approved Gratuity Trust fund. This flexibility provides employers with options based on their operational preferences while maintaining the overall integrity of the fund.

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Approval of Group Gratuity Scheme:

In cases where an employer has obtained a group gratuity scheme from an insurance company, such a scheme should be approved under Part C of the Fourth Schedule to the Income-tax Act. This requirement ensures that group gratuity schemes are in compliance with the relevant income tax regulations.

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Investment Guidelines:

For privately managed Gratuity Trusts, the investment of funds must align with the Investment Pattern prescribed in the Income-tax Act. This condition aims to regulate the investment strategies of the trust, safeguarding the funds and maximizing returns within the legal framework.

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Protection of Gratuity Funds:

Gratuity funds are strictly protected, and their outflow should be directed only to eligible employees at the time of their exit from service. The employer or the Gratuity Trust is prohibited from withdrawing funds for any purpose other than the payment of gratuity to eligible employees.

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Bye-laws and Procedures:

The Gratuity Trust is required to have detailed bye-laws outlining procedures for the claim and release of the calculated amount of gratuity to eligible employees. This ensures transparency and clarity in the processes related to gratuity payouts.

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Compliance with Accounting Standards:

The Gratuity Trust is required to adhere to Indian accounting standards on Employee Benefits, reinforcing financial transparency and accountability.

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Joint Responsibility with Insurance Company:

The Gratuity Trust and the insurance company are jointly and severally responsible for fulfilling liabilities under the Act. This shared responsibility ensures a collaborative approach to meet the obligations outlined in the Karnataka Compulsory Gratuity Insurance Rules, 2024.

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Conclusion

The Karnataka Compulsory Gratuity Insurance Rules, 2024, represent a significant step towards ensuring financial security for employees and streamlining the gratuity process for employers. By adhering to the stipulated timelines and conditions, companies can not only fulfill their legal obligations but also benefit from tax savings and contribute to the overall welfare of their workforce. It's imperative for employers in Bangalore and across Karnataka to familiarize themselves with these rules and take prompt action to stay compliant and uphold employee welfare.

FAQ

Q. What are the tax implications for employers and employees under the Karnataka Compulsory Gratuity Insurance Rules, 2024?

A. The rules likely offer tax advantages, such as deductions for premiums paid by employers. Employees may benefit from tax-free gratuity receipts. Therefore, both stand to gain tax-wise, enhancing financial security.

Q. How do the Karnataka Compulsory Gratuity Insurance Rules, 2024, impact companies with fewer than 500 employees regarding the establishment or continuation of an approved Gratuity Trust?

‍A. For companies with fewer than 500 employees, the rules may streamline gratuity management without mandatory trusts. Thus, ensuring simpler compliance and financial safeguarding for all eligible employees.

Q. What are the consequences for companies that fail to comply with the Karnataka Compulsory Gratuity Insurance Rules, 2024, by the specified deadlines?

A. Non-compliance might result in penalties, including fines or legal action. Employers should act promptly to avoid these. Therefore, adhering to deadlines is crucial for maintaining compliance and employee trust.