Private Gratuity Trust Registration
Set up an Income Tax-approved private gratuity trust to claim Section 36(1)(v) deductions, comply with AS 15 / Ind AS 19, manage off-balance-sheet employee liabilities, and protect employee gratuity entitlements. Includes actuarial valuation coordination and IT approval.
Section 36(1)(v)
Tax Deduction
₹20 Lakh per Employee
Max Tax-Exempt
30-45 Business Days
Timeline
₹14,999
Starting At
Commissioner of IT
IT Approval
AS 15 / Ind AS 19
Accounting
What is a Private Gratuity Trust?
A Private Gratuity Trust is a trust created by an employer to fund and manage the company's gratuity obligation to employees under the Payment of Gratuity Act, 1972. When approved by the Commissioner of Income Tax, contributions to this trust become deductible under Section 36(1)(v).
Gratuity is calculated as (15/26) x Last Salary x Years of Service. With average salaries rising, a company with 200+ employees can face a gratuity liability of ₹5-20 crore. A funded trust manages this systematically rather than as a sudden cash outflow.
Under AS 15 and Ind AS 19, the gratuity obligation must be actuarially valued and disclosed annually. The trust provides the funding structure required for proper accounting treatment and clean audit opinion on financial statements.
Gratuity Calculation
Gratuity = 15/26 × Last Salary × Years
Where Salary = Basic + Dearness Allowance
Note: Without an approved trust, gratuity contributions are NOT deductible in the year of provision — only when actual payment is made.
Who Should Set Up a Gratuity Trust?
Any employer with significant gratuity obligations benefits from a structured, IT-approved trust.
Companies with 10+ Employees
The Payment of Gratuity Act applies to all establishments employing 10 or more persons. Setting up an approved trust provides structured, tax-efficient compliance.
IT / Technology Companies
High-compensation tech companies with large workforces face significant gratuity obligations. An approved trust manages these liabilities efficiently while providing maximum tax benefit.
Manufacturing Companies with Long-Serving Staff
Manufacturing companies with blue-collar workers who often complete 5+ years of service face substantial gratuity payouts. A funded trust ensures these are met without cash flow disruption.
Listed Companies and Ind AS Filers
Ind AS 19 requires actuarial valuation and appropriate funding of defined benefit plans. A gratuity trust provides the funding structure required for Ind AS compliance.
PSUs and Government-Aided Organisations
Public sector undertakings and government-aided organisations must have approved gratuity trusts under their service rules and relevant ministry guidelines.
Companies Preparing for IPO or M&A
Investors and acquirers assess employee benefit obligations during due diligence. An approved, funded gratuity trust demonstrates proper governance of HR liabilities.
Benefits of an Approved Gratuity Trust
Tax efficiency, accounting compliance, and employee protection in one structured framework.
Tax Deduction Under Section 36(1)(v)
Contributions made to an approved gratuity fund are deductible as a business expense under Section 36(1)(v). This converts what would be a cash outflow into a tax-efficient liability.
Off-Balance-Sheet Liability Management
Without a trust, gratuity is an unfunded liability on the balance sheet. With an approved trust, the liability is funded externally, improving the company's financial ratios and creditworthiness.
AS 15 / Ind AS 19 Compliance
Proper accounting treatment under AS 15 (Employee Benefits) and Ind AS 19 requires actuarial valuation of defined benefit obligations. A trust provides the funding mechanism for this.
Employee Benefit and Retention Tool
An approved gratuity trust demonstrates employer commitment to employee welfare. It reassures long-serving employees that their statutory entitlement is ring-fenced and secure.
Managed by Independent Trustees
Trust assets are managed separately from the company's operations by appointed trustees. This protects employee benefits even if the company faces financial difficulties.
Actuarial Valuation for Accurate Provisioning
Annual actuarial valuation (required under AS 15 / Ind AS 19) ensures the trust corpus is adequate to meet projected gratuity obligations, preventing funding shortfalls.
Maximum Tax Exemption ₹20 Lakh
Under the Payment of Gratuity Act, gratuity up to ₹20 lakh per employee is exempt from income tax. The trust structure ensures this exemption is properly administered.
Better Cash Flow Management
Regular contributions to the trust spread the gratuity cost over the service period rather than creating a large one-time cash outflow when senior employees retire or leave.
Gratuity Trust Setup Process - Step by Step
From actuarial valuation to Income Tax approval — we manage the complete process.
Actuarial Valuation
Commission an actuarial valuation from a Fellow of the Institute of Actuaries of India (FIAI). The actuary calculates the Present Value of Obligation (PVO) using assumptions for salary growth, attrition, mortality, and discount rate.
Trust Deed Drafting
Draft the Trust Deed establishing the Private Gratuity Trust — specifying the settlor (company), trustees (at least two: one employer, one employee representative), beneficiaries, contribution provisions, investment norms, and administration rules.
Board Resolution
Pass a Board Resolution authorising: (1) establishment of the gratuity trust; (2) appointment of trustees; (3) initial contribution to the trust corpus; and (4) authorisation to apply for Income Tax approval.
Trust Registration
Register the Trust Deed with the Sub-Registrar of Assurances where the trust is situated. Pay stamp duty as applicable in the state. The registered Trust Deed is the foundational legal document.
Application for IT Approval
File an application before the Commissioner of Income Tax (Exemptions) under Section 2(5) of the Income Tax Act requesting approval of the gratuity trust as an ‘approved gratuity fund’.
IT Approval Hearing
Attend hearing before the Commissioner of Income Tax. Submit Trust Deed, actuarial valuation report, Board Resolution, and supporting documents. Respond to queries raised by the Income Tax authority.
Approval Order
Once satisfied, the Commissioner of Income Tax issues the approval order designating the trust as an ‘approved gratuity fund’. This enables Section 36(1)(v) deduction for contributions from the date of approval.
Annual Administration
Invest trust corpus as per IT Rules (IRDA-approved funds, government securities). Conduct annual actuarial valuation. Make annual contributions. Maintain trust accounts and file trust income tax return (ITR-7).
Documents Required
The following documents are needed for trust deed registration and Income Tax approval application.
Starting at ₹14,999
Comprehensive fee for trust deed drafting, registration coordination, IT approval application, and first-year administration setup.
Timeline:
Frequently Asked Questions
Everything about private gratuity trust setup, IT approval, actuarial valuation, and AS 15 compliance.
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