Enterprises of all shapes and sizes share a common desire to decipher the regulatory framework governing actuarial valuations. This is particularly relevant in the Indian context, where the gratuity scheme stands as one of the most prevalent employee benefits. Here, we have tried to decode the gratuity valuation applicability for businesses.


Want to explore the specifics? Let’s first grasp which types of enterprises are mandated to provide gratuity benefits to their employees. This can be categorized into two main aspects:

The Payment of Gratuity Act, 1972


The Act confers a statutory right to gratuity for all employees who have:


  • Rendered 5 years of continuous service.
  • Experienced termination of services due to superannuation, retirement, resignation, death, or disablement.


The Act applies to establishments with 10 or more employees on any day of the preceding year. It encompasses every form of business, including proprietorships, partnerships, and limited companies. Once the Act becomes applicable to an organization (i.e., once an establishment hires more than 10 employees), it continues to apply even if the number of employees falls below the minimum requirement.

Applicability of Actuarial Valuation to Corporate Entities


Upon establishing that an organization is required to implement a statutory benefit scheme, the next step is determining the need for actuarial valuation.


According to Chapter IX of the Companies Act, 2013, every company must prepare books of accounts in line with relevant Accounting Standards, including AS 15. Actuarial valuation is required for certain employee benefit schemes, including gratuity.


Corporate Entities are classified as Small and Medium-Sized Companies (SMCs) and Non-SMCs. Exemptions and relaxations exist for SMCs in complying with gratuity valuation as per AS-15.

Applicability of Actuarial Valuation to Non-Corporate Entities


Appendix II discusses the applicability of accounting standards to non-corporate entities such as LLPs, partnerships, and proprietorships. Non-corporate entities are classified into three categories by ICAI, each having exemptions and relaxations in complying with AS-15 for Level II and Level III Enterprises.


Understanding whether an entity falls under Level II or Level III is crucial in determining the extent of compliance.


Contact Mithras Consultants to learn more on how to make the best use of these exemptions and relaxations in complying with the accounting standard.

Applicability of IND AS 19 to Companies


Mandatory application of Ind AS 19 began on or after April 1, 2017, for listed companies, unlisted companies with a net worth of Rs. 250 Cr or more, and holding, subsidiary, joint venture, or associate companies of the listed and unlisted companies.


Voluntary adoption is open to other companies for financial statements for accounting periods beginning on or after April 1, 2015. Once a company starts following Ind AS 19, it becomes mandatory for subsequent financial statements, and the option is irrevocable.


Notably, once a company adopts Ind AS 19, there’s no requirement to prepare another set of gratuity valuation reports under AS 15.

Why Do These Accounting Standards Need Actuarial Valuation?


Actuarial valuations are mandated by AS 15 and Ind AS 19 to:


  • Recognize liability when an employee has provided service for future employee benefits.
  • Recognize an expense when the enterprise consumes the economic benefit arising from an employee’s service in exchange for employee benefits.

How Often Do We Need Actuarial Valuation of Gratuity Scheme?

  • Financial Reporting at Year End


Actuarial valuations are necessary at the end of every accounting period for the preparation of financial statements. This applies to all enterprises where AS 15 or Ind AS 19 is applicable, whether fully or partially.

  • Interim Financial Reporting


For enterprises required to present interim financial results per AS 25: Interim Financial Reporting, provisions for gratuity and other defined benefit schemes for an interim period are calculated on a year-to-date basis. While actuarial valuation is not mandatory for interim financial reporting, Ind AS 19 does require determining the net defined benefit liability or asset regularly to align with the amounts recognized in financial statements.


In a volatile economic environment, obtaining a valuation at each interim balance sheet date may be necessary.



  • The Payment of Gratuity Act applies if an organization has more than 10 employees.
  • If Ind AS 19 applies to a company, actuarial valuation is required for both interim and final financial reporting.
  • For entities’ gratuity valuation as per AS-15, assessing eligibility for exemptions or relaxations, based on Level II or Level III categorization or SMC status, is crucial for compliance.


Understanding this regulatory setup for actuarial valuation demands a comprehensive understanding of the specific requirements applicable to different types of entities. It’s not only about compliance but also about making informed decisions to optimize the utilization of exemptions and relaxations available within the regulatory framework.