If your company has employees in India, chances are you’ll eventually hear the term “Actuarial Valuation Report of Gratuity” during audits or from your statutory auditor. For many founders and accountants, this may sound highly technical, but it is simply a mandatory compliance requirement to record your gratuity liability correctly.
In this guide, we’ll explain in plain English:
What an actuarial valuation report is
Why it is needed
The cost and timeline
What data you need to provide
How it helps your accounts and audit
A few technical points (sections of law, method used) for credibility
By the end, you’ll know exactly what to do to get your gratuity actuarial valuation sorted without stress.
What is an Actuarial Valuation Report of Gratuity?
Gratuity is a statutory benefit under the Payment of Gratuity Act, 1972. It becomes payable when an employee completes at least five years of continuous service and leaves the company (resignation, retirement, death, or disablement).
While you may not be paying gratuity today, accounting standards require you to recognise this liability in your books each year. That’s where an actuary steps in.
An actuarial valuation report is a certificate issued by a qualified actuary that calculates:
The total gratuity liability of your company as on the balance sheet date
The expense you should recognise for the year
Additional disclosures if you follow Ind AS 19
Why do Companies Need It?
Legal Requirement under Gratuity Law
The Payment of Gratuity Act, 1972 applies to any company with 10 or more employees at any time during the last 12 months. Once applicable, gratuity continues even if employee strength falls below 10.Accounting Standard Compliance
AS 15 (Employee Benefits) – applicable to most companies not under Ind AS.
Ind AS 19 (Employee Benefits) – applicable to listed companies and large private companies.
Both standards mandate actuarial valuation of gratuity liabilities using the Projected Unit Credit (PUC) method.
Audit Requirement
Auditors will not sign financial statements without an actuarial certificate if gratuity liability exists.Better Planning
Founders often underestimate gratuity liability. An annual valuation helps you plan cash flows and decide whether to fund gratuity through LIC or another group scheme.
The Technical Bit (kept simple)
Section of Law: Payment of Gratuity Act, 1972
Accounting Standards: AS 15 (Revised 2005) or Ind AS 19
Method Used: Projected Unit Credit (PUC) method – this method spreads the cost of gratuity evenly over each year of service, while discounting future payments using government bond yields.
That’s all the technicality you really need.
What Does the Report Contain?
A standard actuarial valuation report of gratuity includes:
Defined Benefit Obligation (DBO): Present value of gratuity liability as on balance sheet date
Current Service Cost: Expense for benefits earned by employees during the year
Interest Cost: Increase in liability due to passage of time
Actuarial Gains/Losses: Impact of changes in assumptions (like attrition or salary growth)
Disclosures:
For AS 15 companies: liability and expense summary
For Ind AS 19 companies: sensitivity analysis, maturity profile, reconciliation of opening/closing balances, and OCI presentation
What Data Do You Need to Provide?
To prepare the report, your actuary will need a simple Excel sheet with:
Employee name
Date of birth
Date of joining
Current salary (basic + DA)
Gender
Retirement age (usually 58 or 60)
Employees who left during the year
That’s it. You don’t need to calculate anything yourself — the actuary does the rest.
Cost and Timeline
Fee: ₹15,000 per report
Timeline: 3–4 working days from the time you share clean data
Delivery: PDF report signed by a qualified actuary (valid for auditors)
Some actuaries may charge more if you have multiple locations or need consolidated reporting, but ₹15,000 is the standard for most SMEs and startups.
Step-by-Step Process
Data Collection
Export employee details from your HR/payroll system into Excel.Send to Actuary
Share the data with an actuary along with your reporting standard (AS 15 or Ind AS 19).Assumption Setting
Actuary sets assumptions: discount rate, salary growth, attrition, mortality (based on industry norms).Report Preparation
Calculations are done using the PUC method.Final Certificate
Report is issued within 3–4 days and can be directly shared with auditors.
Sample Disclosure Note (AS 15)
Here’s a simple example of what auditors expect in financials (numbers illustrative):
Gratuity: The Company provides for gratuity, a defined benefit retirement plan, covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The liability is determined on the basis of an actuarial valuation using the Projected Unit Credit Method. As at 31 March 2025, the present value of obligation is ₹24.50 lakhs (Previous Year: ₹18.30 lakhs).