Typically, a labor law is enacted to protect the interests of employees. The provisions of the Karnataka Compulsory Gratuity Insurance Rules 2024 (notified in January 2024) aim to safeguard the interests of employees, even if a company becomes bankrupt. The new rules will apply to all Karnataka-based establishments covered by the Payment of Gratuity Act, 1972.
As per the new rules (and Section 4A of the Payment of Gratuity Act, 1972), employers have to obtain gratuity insurance from LIC or any approved insurer. Alternatively, they can establish a gratuity trust and contribute periodically to cover the liability of paying gratuity to their employees. Going forward, the option of making a provision in the books of accounts will not be available.
CA Amaranath AS, Co-founder, Arush India, was at our Parichay ‒ Ask the Expert session to help us decode the nitty-gritty of the Gratuity Insurance Rules, 2024.
Featured below are some nuggets of information from the session. Do watch the entire webinar recording for answers to all the queries posed by the audience.
Key Points of the New Rules
• The gratuity insurance rules were notified on January 10, 2024
• Karnataka is the third state to implement these rules in India after AP and TN
• A timeline of 60 days is prescribed to obtain the insurance for existing establishments
• New establishments ‒ 30 days from the date it becomes applicable
• Employers have to register the establishment on Form 1 within 30 days from the date of obtaining the insurance
• Renewal of the policy needs to be done periodically before expiry, and the same needs to be intimated to the authority within 15 days of such renewal
Source: CA Amaranath AS, Arush India
Frequently Asked Questions (FAQs): Karnataka Compulsory Gratuity Insurance Rules, 2024
Is the new rule applicable if the registered office is in Bangalore and a branch is in Mumbai?
It is not applicable because the branch is outside of Karnataka. In this case, the central rules are applicable, not the state rules. However, the central government has not come up with any mandatory insurance rules as of now.
A company had 16 employees before the notification came out. But the headcount was reduced to seven after that. Is the gratuity insurance still required in this case?
Even if the number of employees falls below 10, the Gratuity Act is still applicable. Hence, the new insurance rules are also applicable in this case.
Is the filing to be done online or offline?
As of now, the filing for insurance has to be done offline. There is no online mechanism that has been prescribed at this point.
Is there a penalty if insurance is taken only for the future liability and not the entire liability?
Yes, there is a financial penalty of up to INR 20,000. Moreover, non-compliance can lead to the prosecution of the management as well.
The information in this blog is based on an expert webinar and insights obtained from online research. Read the Karnataka government notification here. Please refer to the latest official communication before implementing the rules in your organization.
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