Gratuity Trust Registration

Gratuity is a statutory benefit governed under the Payment of Gratuity Act, 1972, which mandates that an employer must pay gratuity to an employee who has rendered continuous service of 5 years or more. However, in cases of death or permanent disablement, gratuity becomes payable irrespective of the length of service. Currently, the maximum tax-free gratuity payable under the Act is ₹20,00,000 (as per the latest Income Tax provisions). This amount is payable either to the employee upon cessation of employment or to the nominee/legal heir in case of death.

For employers, gratuity is a financial liability that continues to grow with the length of service and salary of employees. Many progressive companies therefore choose to plan this liability in advance by creating an Approved Gratuity Trust. Such a trust ensures that future gratuity obligations are systematically funded and employees’ interests are safeguarded. Moreover, any contribution made by the employer to an Approved Gratuity Fund is allowed as a deduction under Section 36(1)(v) of the Income Tax Act, 1961, subject to prescribed conditions. This makes gratuity trust registration not only a compliance measure but also a tax-efficient strategy

Why Register a Gratuity Trust?

Compliance with law

Ensures gratuity obligations are planned in line with the Payment of Gratuity Act, 1972

Tax benefits

Contributions to an Approved Gratuity Fund are deductible expenses under the Income Tax Act, 1961

Employee welfare

Provides assurance to employees and their families regarding timely payment of gratuity

Financial planning

Helps companies avoid sudden cash outflows by building a dedicated fund

Governance

Promotes transparency and accountability through a registered trust structure

Areas of Practice – Our Firm Specializes in Gratuity Trust Registration

We assist businesses and organizations in end-to-end setup and registration of Gratuity Trusts with a strong focus on legal compliance, tax benefits, and financial efficiency. Our services include:

  • Preparation of a customized Trust Deed in accordance with the Indian Trusts Act, 1882 and the guidelines of the Income Tax Department.
  • Ensuring the deed includes clear objectives, management structure, and powers of trustees.
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  • Advising on trustee composition, roles, and responsibilities.
  • Guidance on compliance with the Payment of Gratuity Act, 1972 and relevant tax provisions.
  • Assistance in drafting policies for fund management and gratuity disbursement.
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  • Assistance in opening a dedicated bank account in the name of the Gratuity Trust.
  • Obtaining a Permanent Account Number (PAN) for the trust as per Income Tax Rules.
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  • Filing with the Registrar of Trusts / Charity Commissioner (as applicable).
  • Ensuring proper execution of documents, stamp duty payment, and registration process.
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  • Application to the Commissioner of Income Tax for approval of the Gratuity Fund under Rule 2 of Part C, Fourth Schedule of the Income Tax Act, 1961.
  • Ensuring compliance with prescribed investment norms and conditions to secure approval.
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Benefits of Approved Gratuity Trust Registration

Employer’s Advantage

  • Tax deduction for contributions.
  • Better financial planning for gratuity payouts.

Employee’s Advantage

  • Assurance of timely payment.
  • Legal and financial protection for nominee in case of death/disablement.

Regulatory Advantage

  • Compliance with statutory requirements.
  • Recognition by the Income Tax Department ensures transparency.