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Useful articles for your finance management by our team of experts

Understanding What Gratuity Fund is

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gratuity fund

Just like a wedding ceremony that requires good planning before its performance at the matrimonial altar in front of the guests showering flowers over the bride and the groom, an enterprise or organization too needs a good financial plan and management in order to have smoother performance of its operations.

An entrepreneur or the chief founder of an enterprise, it becomes their social responsibility to ensure that all of your employees are positively surcharged at workplace and work collectively towards the attainment of organizational goals.

Apart from monetary remunerations given to the employees, there are other motivating offerings from an employer to the employees such as Gratuity. In simple worlds Gratuity means an amount of money that an employer offers to an employee in gratitude or appreciation for his services to the organization.

The word ‘gratuity’ was borrowed from ‘graciousness’ in 1520 from the French word ‘gratuité’.  It is also said that the word is directly derived from the Medieval Latin ‘gratuitus’ meaning which means free gifts.

An employer pleased with the employee’s performance gratefully offers him monetary rewards for his resultant-contribution. It is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job.  There are a number of reasons why employees leave an organization; they may resign for superannuation, a better career opportunity elsewhere or opt for voluntary retirement.

The Indian Income Tax Act mandates the issuance of gratuity to employees under a condition under section 10 of (10).  The section states that when an employee completes minimum five years of full time services with his employer, he or she becomes eligible to gratuity.

An employer may shell an amount of gratuity out of his own funds or may sign up with a life insurer in order to pay for a group gratuity plan. In case the employer selects a life insurer, he has to pay annual contributions as determined by the insurer. The employee can as well contribute to his/her gratuity fund. The gratuity will be disbursed by the insurer on the considerations of certain terms of the group gratuity scheme.

  • Varun

    Good Piece of Info!!!!!

    • Av Suresh

      Thank you, Varun.

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