Company is envisaging funding the liability under group leave encashment and Post retirement medical care schemes by way of setting up a Irrevocable Employee Welfare Trust to secure employee benefits along with achieving tax efficiency. At present, employee’s right to receive facility/payment under above schemes is not secured by identified funds parked separately to meet the liability. The liability is met from funds which become available in the business from time to time and ability to make such payment is thus wholly dependent upon future business conditions. Every year, based on several actuarial factors such as discount rate, salary escalation rate, attrition rate, average mortality rate, health care & Insurance cost, leave and employee particulars, actuarial valuation is carried out. Actuarial report does not contain employeewise details of contribution and Incremental liability (i.e. single contribution) is determined annually and provided for. Issues: (a) Would the Trust be eligible for exemption certificate and is there any relevant section under Income Tax to allow the same? (b) What are requirements to establish the fund under Trust? (c) What are benefits to employer Company? (d) What are benefits to employees? Kindly enlighten. Regards
N R BEHURA
