Compliance Synopsis:  Karnataka Compulsory Gratuity Insurance Rules, 2024 

Background  

 

As per Section 4A (1) of the Payment of Gratuity Act, 1972 (Act), every employer shall obtain insurance for LIC or any other insurer for the payment of gratuity to employees. However Central government has not notified any date for implementation of the said Section.  

 

Government of Karnataka by virtue of the powers granted under sub section of 4 of Section 4A have notified rules to implement the same vide its notification no. LD 397 LET 2023 dated 10th January, 2024. Rules are name as Karnataka Compulsory Gratuity Insurance Rules, 2024 

 

Synopsis of compliances underlying the Karnataka Compulsory Gratuity Insurance Rules, 2024 are as under:   

 

 

A. Obtaining Insurance Policy 

 

1. Existing establishments to whom Gratuity Act is applicable shall obtain the insurance policy for payment of its gratuity by 09th March, 2024;  
2. Every new establishment or existing establishment (To whom gratuity is not applicable) shall obtain the insurance policy for payment of its gratuity within 30 days on which Gratuity rules becomes applicable.  
3. Insurance Policy to be obtained from Life Insurance Corporation of India or any other insurance company incorporated in accordance with the provisions of the Insurance Act, 1938, the Companies Act, 2013, the Insurance Regulatory and Development Authority of India Act, 1999 or any other law which is applicable to the insurance company in this regard. 
4. Establishments under the Control of Central or State Government will not be covered under these Rules. 

 

B. Responsibility to pay insurance Premium  

 

1. Every employer who has obtained such Insurance for payment of its gratuity should pay the premium in full before the expiry of policy ; and  
2. Shall inform the Controlling Authority of the area about the payment of premium within 15 days from the date of renewal of policy. 

 

C. Registration of Establishment  

 

1. Every employer to obtain registration with controlling authority of the area in Form no. I within 30 days of obtaining insurance policy under Gratuity Rules; 
2. Every Employer shall submit the details of employees covered under the insurance in Form no III with the controlling authority of the area at the time of registration, within 15 days of the renewal/amendment of the policy or whenever there is any changes in the employees covered.    
3. Controlling authority will be office of Jurisdictional labour commissioner.

 

D. Exemption for Gratuity Funds  

 

1. An exemption can be applied from obtaining insurance policy by filing an application in Form no. II with the controlling authority of the area if  

 

a. An employer have an approved gratuity fund for its employees and which to continue the same arrangement or  

b. employer employing five hundred or more persons which to establish Gratuity fund for its employees  

 

Provided the existing approved gratuity fund covers the liability as per the Act.  

 

2. Gratuity funds claiming exemption should create a Gratuity Trust under Indian Trust Act, 1882, fulfilling the following conditions : 

 

a. It should be registered with Five Trustees comprising of representatives of both employer and employee; 

b. In no case the representatives of employer and employee should be equal ; 

c. Such trust deed should also be compliance of provisions of Indian Income Tax Act, 1961 or any other law in force; 

d. Trust should have separate gratuity fund; 

e. By laws of the Trust should provide for detailed procedure for claiming and release of Gratuity and the same should be conformity with that provided in the Act.  

f. Management of the Trust; 

 

i. Trust to be managed by the Board of Trustees; 

ii. Can be managed Privately or Insurance Company or Jointly; 

iii. Funds to be invested as per Indian Income Tax Act, 1961 

iv. Inflow in the fund should be from contribution from employer and non-contributory from employees; 

v. Outflow to be only for payment of gratuity to any employee at the time of exist and for no other purposes except prescribed investment; 

 

g. Accounting practices of the Trust should be as AS -15 and other applicable laws 

h. Trust should be irrevocable.  

 

E. Penal Consequences 

 

1. Failure to obtain Registration or submit details of employees from time to time  

 

i. Sec 9: (2) An employer who contravenes, or makes default in complying with, any of the provisions of this Act or any rule or order made thereunder shall be punishable with imprisonment for a term which shall not be less than 3 months but which may extend to 1 year, or with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 20,000/- , or with both. 

 

2. Non Payment of Premium or payment of contribution to Gratuity Fund   

 

i. Sec 4A(5): If employer fails to make payment by way of premium to the insurance or contribution to an approved gratuity fund he shall be liable to pay the amount of gratuity due under this Act (including interest, if any, for delayed payments) forthwith to the controlling authority.  

 

ii. Sec 4A(6): Whoever contravenes the provisions of sub-section (5) shall be punishable with fine which may extend to ten thousand rupees and in the case of a continuing offence with a further fine which may extend to one thousand rupees for each day during which the offence continues.  

 

iii. Sec 9: (1) Whoever, for the purpose of avoiding any payment to be made by himself under this Act or of enabling any other person to avoid such payment, knowingly makes or causes to be made any false statement or false representation shall be punishable with imprisonment for a term which may extend to 6 months, or with fine which may extend to Rs. 10,000/- or with both.  

 

3. Any other non-compliance  

 

i. Sec 4A(5): If employer fails to make payment by way of premium to the insurance or contribution to an approved gratuity fund he shall be liable to pay the amount of gratuity due under this Act (including interest, if any, for delayed payments) forthwith to the controlling authority.  

 

F. Key Challenges  

 

1. Increase in compliance burden on account of registration of establishment, submission of employee details and informing the department about the renewal of the policy; 
2. Rules are silent about the periodicity on sharing update about changes in the employees and policy.  
3. New gratuity funds will be exempted from the provision of these rules only if number of employees are 500 or more.  
4. Establishment of irrevocable trust also adds to compliance activities for the employer.

 

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