Gratuity Scheme of the Life Insurance Corporation of India. - Income Tax - 375/CBDT

INSTRUCTION NO. 375/CBDT Dated: January 28, 1972 Section(s) Referred: 10(10) Statute: Income - Tax Act, 1961 Reference is invited to the Board's Circular letter F.No. 91/26/66-ITJ(40), dated 5-8-66 according to which the Gratuity Scheme of the Life Insurance Corporation of India was treated as similar to the death-cum-retirement gratuity Scheme under the Revised Pension Rules of the Central Government. 2. The Board had occasion to review the Gratuity Schemes of some of the Nationalised Banks and the Life Insurance Corporation of India to see whether they are similar to the Gratuity Scheme under the Revised Pension Rules of the Central Government. The Ministry of Law have also been consulted in the matter. 3. The scheme of the Central Govt. contains the following essential features:- (i) There is a minimum qualifying period of service for entitlement to gratuity. (ii) There is a prohibition, subject to certain exceptions on the payment of gratuity on the resignation or dismissal of the employee. (iii) The gratuity is calculated on the basis of emoluments drawn by the employee, and (iv) The gratuity calculated is subject to a ceiling of 15 times the emoluments or Rs. 24,000 whichever is less. 4. On a review of the schemes mentioned above, it is found that these schemes also contain provisions regarding qualifying service, basis of calculation of gratuity and a ceiling in terms of certain months' pay. These provisions are not exactly the same as in the case of the Central Government in the sense that the qualifying service may be longer than 5 years or the rate of calculation of gratuity slightly different from 9/20th of the emoluments as in the case of Government service. The Board are advised that these differences are not material and will not make these schemes dis-similar to the Government's scheme. 5. It is also observed that many of these schemes do not contain any monetary limit and even if they do, the limit is higher than Rs. 24,000. The Board are advised that the absence of the monetary limit or the specification of the different monetary limit does not make the schemes dis-similar to the Government's scheme. 6. Further, the prohibition regarding non-payment of gratuity under certain circumstances does not exist in some of these schemes. Here again, the Board are advised that the absence of such a prohibition does not make the schemes dis-similar to the Government's scheme. 7. In short, if under a gratuity scheme, (a) gratuity is payable dependent upon a qualifying service and (b) it is calculated on the basis of emoluments actually drawn by the individuals, the gratuity scheme will be similar to the gratuity scheme under the Revised pension Rules of the Central Govt. The fact that gratuity is payable even in the case of voluntary resignations and/or that no maximum monetary limit of gratuity is fixed, would not alter the position. The position will be the same for deciding the question of similarity of the scheme of a Corporation established by the Central, State or Provincial Act to the scheme under the Revised Pension Rules of the Central Government. 8. This may be brought to the notice of the officers working in the charge.