Compute statutory gratuity (Payment of Gratuity Act 1972) and DBO (Ind AS 19 / AS 15) using the Projected Unit Credit method for a single employee. Useful for auditor sanity-checks of the actuary’s report.
Under the Payment of Gratuity Act 1972, an employee with 5+ years of continuous service is entitled to gratuity on resignation, retirement, death or disablement at 15 days’ salary × completed years (salary = last-drawn basic + DA / 26). Tax-exempt cap is ₹20 lakh (Sec 10(10) Income Tax Act).
For accounting, Ind AS 19 (or AS 15 Revised for non-Ind AS entities) requires the Projected Unit Credit (PUC) method — project the salary at exit, attribute the benefit to each year of service, discount back using the yield on Government of India bonds matching the expected term. The result is the Defined Benefit Obligation (DBO) on the balance sheet.
Gratuity in India has two parallel computations. Under the Payment of Gratuity Act 1972, an employee who has rendered continuous service of five years or more is entitled to gratuity on resignation, retirement, superannuation, death, or disablement, at the rate of 15 days' salary for each completed year of service (or part thereof beyond six months). The salary base is the last drawn basic + DA, divided by 26 to get the daily rate. The five-year eligibility is waived in case of death or disablement.
For accounting, Ind AS 19 (Employee Benefits) or AS 15 (Revised) for non-Ind AS entities, requires the entity to recognise a defined benefit obligation (DBO) on the balance sheet, computed using the Projected Unit Credit (PUC) method. The PUC method projects the salary at the date of exit (using a salary escalation assumption), attributes the projected benefit to each year of service, then discounts the past-service portion back to the reporting date using the yield on government bonds matching the expected term.
The DBO is recognised net of the fair value of plan assets (typically the corpus held with LIC, SBI Life, or an approved gratuity trust). Re-measurements — actuarial gains and losses from changes in financial / demographic assumptions, and the return on plan assets in excess of interest income — are recognised in Other Comprehensive Income (OCI) and never reclassified to P&L. Current service cost and net interest are recognised in P&L.
An employee aged 35, with completed service of 6 years, monthly basic + DA of ₹50,000, normal retirement at 58. Salary escalation 8%, discount rate 7.25%, attrition 5%.
