Insurers can pay gratuity in instalments

MUMBAI: The Insurance Regulatory Authority of India ( IRDA) has allowed state-owned non-life insurance companies to provide for their increased gratuity liability in instalments. This will provide relief to the state-owned companies, some of which would have otherwise been forced to approach the government for additional capital. State-owned insurers face a higher employee wage liability after the pay revision of the officers and employees was carried out by them in 2010-11. Also, the government had revised upward maximum limit for gratuity under

"Payment of Gratuity Act 1972" from Rs 3.5 lakh to Rs 10 lakh with effect from May 2010. "These factors will lead to the increase in liability on account of gratuity which in turn will impact the insurers profitability significantly as they need to provide the same in the financial year 2010-11. This will cause a strain on their solvency as well as on their performance results," IRDA said.

The regulator said that in view of this pressure on finances, the authority has permitted insurers to amortize the additional liability on account of gratuity over a period of five years starting from financial year 2010-11. This is subject to the condition that the additional liability on account of enhancement in gratuity limits may be fully recognized and charged to Revenue Account and/or Profit and Loss Account for the financial year 2010-11.

The regulator has set an additional condition that the expenditure carried forward should not include any amounts relating to separated/retired employees. Also insures will have to make a complete disclosure of this in their balance sheet.