What Is Gratuity Fund How Is It calculated
According to local laws, a company can establish a Gratuity Trust Fund for the benefit of the employees. By law, 1/11th of Basic Salary per month is contributed by the company to the Gratuity Fund to the account of the employee. Thus there is a saving of 1/11th of basic salary on behalf of the employee in Gratuity Fund. The company can invest the savings in Gratuity Fund in Government Approved securities such as defense saving Certificates. Interest earned on investments in Gratuity Fund is credited to the account of the employees in proportion to their share in the Gratuity Fund.
The salary of an employee is as follows:
Basic salary = 10,000 Rs.
Allowances = 5,000 Rs.
What is the contribution of the company on account of gratuity to the Gratuity Trust Fund?
Company contribution to Gratuity Fund = Total savings of employee in Gratuity Fund = 1/11 x 10000 = 909.1 Rs.