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The Benefits of Group Gratuity Insurance

Long Term Investments and Market Linked Returns

Investment of gratuity funds in unit linked investment portfolios will reduce business costs. A good plan will help you reward your employees well without a financial impact on your business.

Comprehensive Cover

The Group Gratuity Scheme creates gratuity benefits for employees. It can also provide death benefits and financial security to family members of employees insured under this scheme.

Extends Tax Relief to The Employer & Employee

Annual gratuity contribution by employers is an expenditure for tax calculation. Income from gratuity is exempt from tax upto specified limit and subject to conditions outlined in section 10(10).

Fast Claim Settlement

Claim settlement with us is easy and prompt. We have a team of claim experts who handle claim requests quickly, ensuring a smooth and hassle-free process for our partners.

Quick Guide to Group Gratuity Insurance

Group Gratuity Scheme

A group gratuity scheme is a retirement benefit plan offered by an employer to its employees. The employer sets up a fund to give a one-time payment to the employee when they retire, resign, or in case of death. The company bases its gratuity calculation on the employee's length of service and salary.

Description : In a group gratuity scheme, the employer contributes to a fund for employees, overseen by a trustee. The gratuity amount given to employees is tax-free up to a limit of INR 20 lakhs, according to the Income Tax Act, 1961. The plan is a long-term commitment from the employer. You need regular funding to make sure there's enough money for employee gratuity payouts.

Examples : Let's say an employee, with 15 years of service, retired with a monthly basic salary of INR 1,00,000. The employer has group gratuity scheme that provides gratuity of 30 days of salary for every year of service. In this scenario, the calculation of gratuity amount would be as follows:

Gratuity amount = (15 x 30x 1,00,000) / 26 = INR 1,730,769

How Group Gratuity Plan Works

A group gratuity plan is a retirement benefit scheme offered by employers to their employees. This scheme aims to furnish financial security to employees upon retirement or departure from employment for any reason. A defined benefit plan sets aside a specific amount of money for employees' retirement benefits.

Here's how the group gratuity plan works:

  • The employer sets up a trust or purchases an insurance plan with an insurance company to fund the plan. The funds utilize a portfolio of stocks, bonds, and other securities to ensure their growth.
  • The employer contributes a fixed percentage of the employees' salaries to the plan on their behalf. The contribution amount is calculated using a formula that considers the employee's length of service and salary level.
  • The plan combines and invests funds, integrating investment earnings into the overall fund. When an employee retires or leaves the company. They receive lump sum amount based on their completed years of service and salary level. The employer calculates this amount using a predetermined formula set by them.
  • The employee has the option to receive the gratuity amount in one lump sum.

Key Features of the Group Gratuity Scheme

The Group Gratuity Scheme is a retirement benefits scheme that an employer may offer its employees. The Group Gratuity Scheme key features are:

  • Employer-funded - In a group gratuity scheme, the employer funds the scheme on behalf of its employees. This is a defined benefit scheme, which means that the employer guarantees a specific benefit to employees at retirement.
  • Long-term commitment - The employer commits long-term to provide retirement benefits through a group gratuity scheme for employees. Employers need to regularly contribute to schemes to build up funds to pay gratuity benefits to employees upon retirement.
  • Tax benefits - The Group Gratuity Scheme provides tax benefits to the employer and the employee. Employers can claim tax deductions on contributions made towards the scheme. The employee is also eligible for tax benefits on gratuity received at retirement, subject to upto INR 20 lakhs.
  • Guaranteed benefits - The group gratuity scheme is a defined benefit scheme, which guarantees benefits payable to employees at retirement.
  • Auditor valuation - 5. An auditor valuation determines the gratuity benefits payable to employees under the scheme. This ensures that the scheme is financially sustainable and can provide the promised benefits to the employees.
  • Trust-based - The trust holds the contributions made by the employer towards the scheme.

Benefits of Group Gratuity Scheme

This is a retirement benefit plan that gives employees a lump sum when they retire or leave the company. Employers can offer this plan to their employees to ensure their financial security in their golden years. Here are the group gratuity scheme benefits:

  • Retirement Benefits - Group gratuity schemes provide employees with a retirement benefit that ensures financial stability in their post-retirement years.
  • Tax benefits - Both the employer and employee can enjoy tax benefits under the Income Tax Act. This is for contributions or encashment related to the gratuity scheme.
  • Long-term investment - Group gratuity schemes invest in diverse stocks, bonds, and securities for sustained long-term growth. This ensures the growth of the funds over time.

Group Gratuity Scheme Capability

Understanding the charges associated with a Group Gratuity Scheme is crucial for effective financial planning. The following table summarizes the typical charges that may be involved:

Capability CriteriaDetails
Member's Age at Entry18 to upto Retirement age
Minimum Contribution at Scheme LevelRs. 5 lakhs
Minimum Sum AssuredRs. 5,000/- (per member) fixed
Member's Maximum Age at MaturityRetirement age
Policy Term (PT)One year (renewable)
Minimum Size of the Group10 Members

Group Gratuity Scheme Tax Benefits

The Group Gratuity Scheme not only serves as a valuable retirement benefit plan for employees. It also provides tax advantages for both the employer and the employee. Here are some tax benefits of the Group Gratuity Scheme:

  • Tax deduction for the employer - Employers can claim a tax deduction for contributions made towards the Group Gratuity Scheme. Employers can claim a maximum tax deduction of 8.33% of the employee's monthly basic salary.
  • Tax exemption for the employee - The employee receives tax-free gratuity up to INR 20 lakhs under the the scheme.
  • Tax-free death benefits - If an employee dies while enrolled in the Group Gratuity Scheme. Nominees receiving the death benefit won't have to pay taxes.
  • Tax exemption on interest earned - Interest earned on contributions made towards the Group Gratuity Scheme is exempt from tax.
  • 5.No tax on withdrawal - If an employee exits the Group Gratuity Scheme before completing 5 years of service. The gratuity amount received will be subject to tax. If you withdraw the gratuity amount after completing 5 years of continuous service, it will be tax-free.
  • No tax on transfer of funds to the employee's nominee - Scheme grants tax-free transfer of funds. If an employee enrolled in the scheme passes away, the funds transfer to the nominee.

Charges under the Group Gratuity Scheme

Group Gratuity Scheme is financial product offered by insurance companies to employers to provide retirement benefits to their employees. Like any other financial product, the Group Gratuity Act may come with certain charges. Here are some typical charges associated with the Group Gratuity Scheme:

  • Mortality charge - The charge covers the expense of providing life insurance coverage to employees in the scheme, based on their age.
  • Fund management charge - This charge is what the insurance company collects for handling the scheme's investments, usually percentage of total assets managed.
  • Surrender charge - The insurance company levies this charge if the employer decides to surrender the policy before its maturity date. The charges for the Group Gratuity Scheme may differ based on the insurance company and the policy.

Employers should carefully review the charges associated with the policy before enrolling their employees. Here is a table summarizing the typical charges associated with the Group Gratuity Scheme:

Mortality chargeBased on the age of the employees
Fund management chargeA percentage of the assets under management
Surrender chargeCharged in case of policy surrender before maturity.

It's advisable to thoroughly read the policy documents and seek guidance from the insurance company or a financial advisor. This helps us understand the charges related to the Group Gratuity Scheme.


The Payment of Gratuity Act, 1972, is a crucial piece of legislation in India. It aimed at ensuring the financial security of employees’ post-employment. Employers must give a bonus to employees who work for them for at least five years without stopping, it is covered under the act. This gratuity is a thank you for the employee's hard work, calculated using their salary and years worked.

The Gratuity Act, 1972 mandates employers to pay gratuity within 12 months from the date it becomes payable. Thus, ensuring timely compensation to employees. Understanding the gratuity rules in India is essential for both employers and employees. It ensures compliance with the law and fair treatment in the workplace.

Frequently Asked Questions

Employees receive gratuity as an acknowledgment of their dedicated service to the organization. This is a lump sum payment made by the employer to the employee as a form of retirement benefit. The amount paid is typically based on the employee's length of service and salary. Gratuity serves the purpose of offering financial security to employees after retirement or in situations of death, disability, or termination of employment.
Gratuity is not an insurance policy. A benefit that the employer pays to the employee as a form of retirement benefit. However, there are insurance policies available that provide coverage for gratuity.

These policies are called future service gratuity, intending to ensure financial security for employees in situations like retirement, death, or disability. These policies, called future service gratuity, aim to offer financial security to employees in situations like retirement, death, or disability.
Group gratuity is not compulsory for employers. However, many employers choose to provide their employees group gratuity as a form of retirement benefit. Group gratuity is a way to ensure that employees have financial security in their retirement years.
Gratuity amount can be invested in different financial instruments such as fixed deposits, mutual funds, stocks, bonds, insurance policies. The employer should choose the investment option based on their risk profile and financial goals. This is advisable to seek professional advice before investing the gratuity amount.
Yes, gratuity is taxable for private employees. However, certain tax exemptions are available for gratuity amount based on the length of service and the employee's drawn salary. The gratuity amount is exempt from tax up to a certain limit per the Income Tax Act.
Life insurance companies can handle gratuity funds, which serve as retirement benefit for employees, through traditional and ULIP options. ULIP plans provide returns linked plan to the market and carry higher risk profile, yet they offer the potential for higher long-term returns.
Once funded and placed in the trust, gratuity cannot be reclaimed into the company account. Specific rules and regulations govern the funds kept in trust for the benefit of employees.


How is premium calculated for Group Gratuity policy?

Gratuity is given by the employer to the employee in lieu of the services rendered during the period of employment. Here, we’ll get to learn the criteria for the premium calculation of the Group Gratuity policy. Usually pays the gratuity at the time of retirement but can also pay earlier, provided below conditions meet...
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What are the various charges applicable to Unit Linked Group Gratuity Plans?

The purpose of a Unit Linked Group Gratuity Plans is to provide the employees a lump sum benefit on their exit. This benefit is called gratuity. When a policy holder goes for a group gratuity plan from an insurance provider, he is levied with the following charges:

Fund Management Charge:

It is the charge applicable as a percentage of the value of assets...

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What are the statutory requirements for Payment of Gratuity?

The sum of money paid to the employee by his/her employer for rendering the services for a long period in the company is known as gratuity.

However, there are certain statutory requirements that one must adhere to while paying gratuity to their employees. These are:

1. It is paid to employees who have completed at least 5 years in the company....

Read More

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