RPEB Employee Benefits

RETIREMENT PLANNING AND

EMPLOYEE BENEFITS

CFP Program

Employee Benefits

Defined Benefit Plans Gratuity Leave Encashment Retrenchment Compensation Voluntary Retirement Services

Defined Contribution Plans Provident Fund

Employee Pension Scheme 1995 Employees’ Deposit Linked Insurance, 1972

Recognized Provident Fund Pension Superannuation Scheme

Defined Benefit Plans


A DBP undertakes to provide specific benefits to an employee on retirement

Generally, benefits under the plan are a function of both years of service and employee’s salary

Also called traditional retirement benefit plans, operating since a long time, formulated for providing income streams to workers based on loyalty with the company

World over we are moving to Defined Contribution plans and plans that combine both characteristics

Examples Gratuity Leave Encashment Retrenchment Compensation Voluntary Retirement Services


Advantages

Offers defined & guaranteed retirement income security for employees

No investment risk, since benefits are defined

Inflation taken into account since it is based on last drawn salary

Benefit payable is liability of employer, so employee does not need to save

Disadvantages

Difficult to understand by participant, as the benefit is formula based

Not beneficial to employees who leave before retirement

Employee Benefit SchemesGratuity

Gratuity payment is made by the employer as a mark of recognition of the service rendered by the employee to the company. This payment also acts as an incentive for motivating the employee. An employee is eligible for receiving gratuity payment only after he has completed 5 years of continuous service.


Applicability Every shop or establishment employing 10 or more employees Applies to entire India except J&K

Payment On retirement or resignation if employee has put in more than 5

years of continuous service Condition of 5 years not applicable where cessation of service

is on account of death or disability Salary Definition

Basic Salary + DA + Commission on Turnover (if any) Month is to be reckoned as 26 days


What is Continuous Service?

An employee is said to be in continuous service for a period, when he has provided uninterrupted service during that period. However, interruption on account of the following are excluded:

Sickness Accident Leave Lay-off Strike, lock-out, cessation of work not due to any fault of

the employee

Computation under Payment of Gratuity Act, 1972 Monthly rated employees are entitled to 15 days terminal salary as

gratuity for every completed year of service or part thereof in excess of 6 months

15/26 * Last drawn monthly salary * No of years of completed service or part thereof in excess of 6 months Seasonal employees are entitled to 7 days salary as gratuity for each

season of service7/26 * Last drawn monthly salary * No of seasons

Maximum ceiling of Rs 3,50,000 (The ceiling of Rs 3.5 lacs has been modified to Rs 10 lacs under The Payment of Gratuity (Amendment) Act, 2010. Section 10(10)(iii) of the IT act increases the gratuity exemption to Rs 10 lacs for employees who retire or become incapacitated prior to such retirement or die on or after the 24th day of May, 2010 or whose employment is terminated on or after the said date)


Tax treatment: Section 10(10 III)

Government Employees: In the case of government employees the entire amount of death-cum-retirement gratuity is exempt from tax and nothing is therefore taxable under the head Salaries.



Payment of Gratuity Act (POGA): The gratuity received by an employee, covered by the Payment of Gratuity Act 1972, is exempt from tax to the extent of the least of the following:

15 days salary, based on salary last drawn for every completed year of service or part there of in excess of 6 months (7 days in the case of seasonal employment)

Rs. 3,50,000 (Rs 10,00,000 on or after 24.5.2010) Gratuity actually received

** Month to be reckoned as 26 days



Other employees (NON POGA): In the case of other employees the gratuity received or receivable on his retirement or on his becoming incapacitated prior to such retirement or termination of his employment or any gratuity received by his heirs is exempt to the extent of the minimum of the following amounts. Actual amount of gratuity received. Rs 3,50,000 (Rs 10,00,000 on or after 24.5.2010) Half month's average salary for every completed year of

service. 1/2 * Average salary * No of completed years of service

** Average salary is the average of last 10 months salary



Example

Kishore retired from Axus Co. Ltd. on 31/12/2008. Axus Co. is covered under Payment of Gratuity Act, 1972. He served for 30 years and 9 months and was paid a gratuity of Rs. 3,90,000. His monthly basic salary at the time of retirement was Rs. 10,000 p.m. and DA was Rs. 2500 p.m. Compute the taxable amount of gratuity.

Gratuity exempt will be the least of the following 1. Rs 3,90,000 (Gratuity actually received)2. 15/26 * 12,500* 31 = Rs 2,23,557 (Gratuity as per the

Act)3. Rs 3,50,000 (Exempt as per IT Act)

Employee Benefit SchemesGratuity - Exercises

Mr Sam joined a private company on 01.09.1965. He retired from services on 30.4.2004 at Superannuation age of 60 years when his monthly emoluments were as under – Basic Salary Rs 7,000, DA Rs 3,000, HRA Rs 1,000. The company pays gratuity as per Payment of Gratuity Act, 1972. Mr Sam is entitled to a gratuity amount of Rs 3,50,000 Rs 2,19,231 Rs 2,25,000 Rs 3,28,846


Mrs Shah retired from Ace Co. Ltd on 31.12.2007. The company is covered under Payment of Gratuity Act, 1972. She served for 30 years and 9 months. Ace paid her gratuity of Rs 4 lacs. Her monthly basic at the time of retirement was Rs 9,000 p.m. and DA was Rs 4,000 p.m. Compute taxable amount of gratuity of Mrs Shah. Rs 1,60,000 Rs 1,57,500 Rs 1,67,500 Rs 1,70,000


Mr Ramesh retired from PTC Ltd after completing service of 29 years and 9 months. His last drawn salary at the time of retirement was Rs 10,500 and average salary drawn for the preceding 10 months worked out to Rs 9,600. PTC Ltd paid his gratuity of Rs 3,25,000. Calculate the gratuity exempt from tax assuming he is not covered under the provisions of Payment of Gratuity Act, 1972. Rs 1,75,673 Rs 2,94,000 Rs 3,15,000 Rs 1,39,200


An employee joined in the beginning of year 1992 in a sugar mill covered under the Payment of Gratuity Act, 1972. After working all the years as a seasonal employee up to the end of year 2003, he retires with the following monthly salary: Basic – Rs 2,000, DA Rs 1,000, HRA Rs 500. How much gratuity is payable to him? Rs 11,308 Rs 9,692 Rs 8,400 Rs 20,769

Employee Benefit SchemesLeave Salary

This is another important retirement benefit, which falls under "Defined Benefit" category.

Employees in the organization are entitled to certain leaves during the year.

The leaves can either be availed during the year or can be carried forward.

Under this benefit, the employee gets cash payment for surrendering his unutilized leave that he has accumulated subject to certain conditions.

At the time of leaving the service employee can encash the accumulated leave on salary at that time if the company's rules permit.


Exemption of accumulated encashment Government Employees – Fully exempt from taxOther employees- Exemption to the extent of minimum of the following

Leave encashment actually received 10 months average salary Cash equivalent of accumulated leave calculated on the

basis of 30 days for every year of actual service rendered to the employer from where he is retiring (based on average salary)

Amount specified by government i.e. 3 lacs


Salary includes basic plus DA plus commission on turnover as applicable Average salary is average of salary drawn during 10 months immediately preceding the period of retirement

Employee Benefit SchemesLeave Salary - Example

Mr. X working in the Finance Ministry retired from service on 30.11.2010. He received a sum of Rs. 40000/- as leave encashment.

The amount of Rs. 40000/- is exempt from tax in the hands of Mr. X during the assessment year 2010-2011 because section 10(10AA) (i) specifically exempts such receipt of leave encashment from taxation.

Employee Benefit SchemesLeave Salary - Example

Mr Y, an employee of a private limited company M/s. ABC (P) Ltd. retired from service on 30th November, 2010. At the time of his retirement, unutilised leave of 6 months was credited in the account of Mr Y. The employer of Mr Y decided to pay him Rs. 50,000 for the unavailed leave. During the 10 month period proceeding November, 2010, the month of his retirement, Mr Y received an average salary of Rs. 7500/- per month.

The exemption available to Mr. Y in respect of leave encashment will be least of the following Rs 50,000 (LE actually received) Rs 75,000 (10 months average salary) Rs. 45,000 (Rs 7,500 *6 – unavailed leave based on average salary) Rs 3,00,000 (Exemption under IT Act)

Employee Benefit SchemesLeave Salary - Problem

Normal retirement age in a company is 60 years. An employee after putting in 30 years of service applies for seeking early retirement at the age of 55 years which was agreed to be the employer. He has 210 days of un-availed leave to his credit for which he was paid leave salary amounting to Rs 3,50,000. His last drawn salary was Rs 50,000 but average of last 10 months salary was Rs 48,500. How much amount of leave salary benefits is tax free?

1. Rs 3,50,000

2. Rs 3,39,500

3. Rs 3,00,000

4. None of the above


Normal retirement age in a company is 58 years. An employee after putting in 12 years of service was retired. During service he availed 4 months of leave and had 240 days of un-availed leave to his credit. His employer pays leave encashment benefit on the basis of last drawn salary. The employee’s terminal salary is Rs 45,000 but average of last 10 months salary is Rs 42,500. What was the amount of leave salary paid to him by the employer? How much of it is tax free?

1. Rs 3,60,000, Rs 3,00,000

2. Rs 3,40,000, Rs 3,50,000

3. Rs 5,40,000, Rs 3,00,000



Rajesh after working for 30 years in a company retired in June 2006. He was entitled to one and half months of leave for every year of service. He availed 25 months leave during service and had 20 months un-availed leave at credit during retirement. His employer pays leave encashment benefit on the basis of average of last 10 months salary on surrendering of un-availed leave subject to a maximum of 12 months. The employees terminal salary was Rs 40,000 but average of last 10 months salary was Rs 35,500. How much of leave salary benefit paid to him is taxable?

1. Rs 1,77,500

2. Rs 3,00,000

3. Rs 2,48,500


Employee Benefit SchemesVoluntary Retirement Scheme

Retirement upon reaching the agreed or stipulated age of superannuation is called the normal retirement.

Employers have in their terms and conditions provisions where an employee could seek to retire on his own after an agreed or stipulated period of years before attaining the age of superannuation.

If the terms and conditions for such earlier retirement are met, the employer treat employee’s exit from the service as "early" or "voluntary" retirement for all the practical purposes rather than as resignation.

Thereby, the employee would be entitled to all the benefits that are available to an employee who retires on attaining the normal age of superannuation.

Employee Benefit SchemesVoluntary Retirement Scheme

Exemption applicable to employees who have completed 10 years of service or achieved 40 years of age Scheme should result in reduction in strength of employees, vacancies should not be filled inAmount receivable under this scheme can be equivalent to either of the two amounts below

3 months salary including DA for every completed year of service Salary at time of retirement multiplied by balance months of

service left before the date of retirement

The maximum amount qualifying for exemption under Section 10(10C) is Rs 5 lacs

Employee Benefit SchemesRetrenchment Compensation

This is not really a benefit. It is in fact a provision to protect the interest of an employee, who falls under the definition of "Workman" under the Industrial Disputes Act, 1947, who has to be out of employment due to the decision of the employer to retrench some or all of his employees.

It is a difficult situation for an employee to go through but for these employees who are in demand in the labour market due to their skills, technical knowledge and the experience gained, retrenchment by an employer does not mean much trouble but often a chance to gain another employment, perhaps even with an increase in salary.

The compensation payable to a workman who is being retrenched is dealt with in 'The Industrial Disputes Act, 1947'.

Employee Benefit SchemesRetrenchment Compensation

Applicable when employee is retrenched on account of closing down, transfer of ownership etc.

Exempt as per Section 10(10B) to the extent of least of the following Amount actually received Amount calculated as per 15 days average wages for every completed year of service or part thereof in excess of 6 months. Amount specified by the Central Government i.e. Rs 5,00,000

Wages include allowances, value of house accommodation, water, light, medical or any other amenity.

Average wages means In case of monthly paid workman, wages paid in 3 complete calendar

months In case of weekly paid workman, wages paid in 4 complete weeks In case of daily paid workman, wages paid in 12 full working days

Exercise

What is the maximum amount of exemption received under VRS? Rs 5 lacs Rs 3.5 lacs Rs 3 lacs Fully exempt

VRS is only applicable to employees who have Completed 10 years of service and 40 years of

age Completed 5 years of service or 40 years of

age Completed 8 years of service and 50 years of

age Completed 10 years of service or 40 years of

age

Exercise

What is the maximum amount of tax free retrenchment received under the Industrial Disputes Act? 3,00,000 3,50,000 5,00,000 None of the above

Defined Contribution Plans


In DCP, employer and/or employee make a contribution at a pre determined percentage

The employer has no obligation beyond making a contribution to the plan.

Actual amount of retirement money will depend on investment performance, interest rates and size of contributions made.

Examples Provident Fund Public Provident Fund


Advantages

Participants have certain degree of flexibility on how they choose to save

Can be funded through payroll deductions directly

Participants can benefit from good results

Easily understood by participants

Tax deferred retirement savings medium

Disadvantages

Difficult to build a fund for those, who enter late

Participants bear investment risk

Employee Contribution SchemesProvident Fund

Statutory & Contributory Provident Fund - Set up under the provisions of the Provident Fund Act, 1925.This fund is maintained by Government and Semi-Government organizations, local authorities, railways and other institutions Establishment notified by Central Government and employing 20 or more employeesRecognized Provident Fund - Recognized by the Commissioner of Income tax in accordance with the rules contained there in Act.Unrecognized Provident Fund - Not recognized by the Commissioner of Income tax. Public Provident Fund - The Central Government has established PPF for the benefit of general public to mobilize personal savings. A salaried employee can simultaneously become a member of EPF and PPF

Statutory or Government Provident Fund

Applicability Organizations of Central, State governments, local

authorities, universities & recognized educational institutions.

Permanent government employees and temporary government employees with 1 year service.

Not for Government Employees joined on or after 01-01-2004.

Amount

Min of 6% of emoluments (Pay including leave salary but not DA) up to full emoluments

Contributory Provident Fund

Applies to government employees joining service on or after 1 Jan 2004

Minimum contribution 10% of the pay from employees Government will contribute max 10% of employees’

contribution yearly If there was no contribution from employee for whatever

reason there will be no contribution from government also Advances and withdrawals are exactly like in GPF Employees’ contribution qualifies for IT exemption u/s

80C Both GPF and CPF are managed by the Finance Ministry

Recognized Provident Fund

This scheme is covered by the Employee Provident Fund and Miscellaneous Provisions Act, 1952 and is applicable to an organization which employs 20 or more employees.

An organization can also voluntarily opt for this scheme. All RPF schemes must be approved by the

Commissioner of Income Tax. Here the company can either opt for government

approved scheme or the employer and employees can together start a PF scheme by forming a Trust.

The Trust so created shall invest funds in specified manner.

The income of the trust shall also be exempt from income taxes.

Employees’ Provident Funds Scheme, 1952

The Employees Provident Funds Scheme, 1952 was introduced in November 1952 to provide old-age and post service financial support to the workers employed in Industrial & Commercial Sector establishments.

The scheme provided for provident fund system on contributory basis by the Employers and the Employees at equal rate.

It made available to the employee concerned the accretions in the Provident Fund a/c with interest in lump sum on retirement or leaving the job.

Employees PF and MP Act, 1952

Applicability Establishment notified by Central Government and

employing 20 or more employees All employees getting salary of Rs 6500 p.m. are

statutorily covered and employees getting higher salaries can also be covered if employer so wishes

Employees covered either statutorily or voluntarily enjoy following employee benefit schemes automatically

Employees Provident Fund, 1952 Employees Pension Scheme 1995 Employees Deposit Linked Insurance 1972

Provident Fund

Employees Provident Fund, 1952 Employee contributes 12% of his salary every month (Basic + DA) Matching contribution either on full salary or on salary up to Rs 6500 pm is made by the employer Employers contribution of 12% is divided into 2 parts

8.33% goes towards contribution to Employee Pension scheme subject to a maximum salary of Rs 6,500 p.m.(Rs 541)

3.67% goes to employees provident fund account Contribution are sent to PF authorities which maintain PF accounts of employees PF contributions along with interest (9.5%) are paid to employees on cessation of service or to nominees in case of death during service

Voluntary Provident Fund

For the risk averse individuals who want a safe option like PF, voluntary contributions to PF or VPF is available.

You contribute more towards your PF, over and above the 12% mandated by the government.

This additional voluntary contribution enjoys all the benefits of PF, except that the company doesn’t contribute an equal amount.

Interest rate is equal to the rate of interest for PF, and the withdrawal on retirement is tax-free.

Maximum contribution can be 100% of salary

Employee Pension Scheme, 1995

Employees Pension Scheme, 1995 A Hybrid plan in which Employer and Central Government contribute to this scheme

Employer contribution – 8.33% of employees salary subject to a maximum of Rs 541 (8.33% of Rs 6,500)

Government Contribution – 1.16% up to employees salary of Rs 6500 p.m.

Life pension paid to employee after certain period of service (10 years) or pension given to family in case of death of employee

EPS 1995

Pension Benefits to the Members

Service above 10 years but below 20 years: A person is entitled for pension after completing the age of 58 years with minimum service of 10 years. Six months or more shall be treated as one year and the service of less than six months shall be ignored. Pension will be calculated by applying the formula: **Pensionable Salary x Pensionable Service

70Service over 20 years:Full pension according to the formula stated above. On rendering 20 years of Pensionable service or more, member’s pensionable service shall in all cases be increased by 2 years

**Pensionable salary is average of the last 12 months salary drawn

EPS 1995

Commutation of Pension Option is available for commutation of Pension

Commutation is permissible up to 1/3rd of pension amount

Upon commutation, the balance amount of pension payable shall be the monthly pension

Employees Deposit Linked Insurance, 1972

Applicability: The Scheme applies to all the establishments to which the Employees'

Provident Fund Scheme applies.

Membership: All the members of the Employees' Provident Fund Scheme are

covered as members of the Employees' Deposit Linked Insurance Scheme also.

Contribution: Under this Scheme, the member does not contribute any amount as

contribution. However, the employer pays an amount equal to 0.5% of the total wages paid to the members as contribution.

Administrative Charges:

As regards Administrative charges, the employer is required to pay an amount equal to 0.01% of the wages subject to a minimum of Rs.

2/- per month.

EDLI,1972

Employees Deposit Linked Insurance, 1972 Insurance paid to family in case of death of employee Paid based on average balance in employees PF account over a period of last 12 months before death of the employee If average PF balance <= Rs 50,000, then insurance is equal to PF balance If average PF balance > Rs 50,000 insurance amount is Rs 50,000 + 40% of amount in excess of 50,000 subject to overall limit of Rs 1,00,000 Contribution made only by employer to the extent of 0.5% of employees salary up to Rs 6500

Provident Fund - Miscellaneous

Administrative expenses for PF, EPS and EDLI are as under

• PF 1.1% of salary bill (amounts on which contribution is deducted)

• EPS Nil

• EDLI 0.5% of salary as contribution and .01% as admin expenses

subject to min of Rs 2 (Rs 6500 as max salary; i.e. Rs 33 will be max EDLI contribution)

Provident Fund – Advances and Withdrawals

Advances and withdrawals of varying amounts are allowed from EPF account for different purposes based on qualifying service

Major reasons are illness, education, purchase of consumer durables and purchase/construction of land/house/apartment and repayment of other loans taken for such purposes. For purchase of land, house/flat or construction of

house, additions/alterations of a house, employee should have completed 5 years of service

For repayment of an existing housing loan 10 years service and for marriage 7 years

Provident Fund

If employer is not covered under PF Act he can exercise any of the following options He may refuse to provide PF benefit to his employees He may apply to PF authorities for voluntary coverage of employees under EPF Act He may set up his own PF scheme as a self administered

In case of above, employer can get his own PF scheme approved by IT authorities- such fund is called Recognized Provident Fund

If approval is not obtained, it is called a Unrecognized Provident Fund Scheme

Public Provident Fund

Available to Indian residents, HUFs, AoPs and NRIs (existing accounts)

Can be opened with a minimum of Rs 500 and maximum contribution in a year is restricted to Rs 70,000

A minimum of Rs 500 p.a. is required to keep the account alive

EEE mode of taxation Interest is 8% p.a.- calculated on the minimum

balance between 5th to end of the month and credited on 31st March every year

Tenure of 15 years (valid till 16th FY) and can be extended for a block of 5 years without any upper limit.

Withdrawals at the expiry of 5 years of opening account; 50% of balance at the end of the 4th year immediately preceding the year of withdrawal or immediate preceding year whichever is lower

An individual can open PPF accounts for his spouse as well as his children as guardian

PF – Tax ImplicationStatutory Provident Fund

Recognized Provident Fund

Unrecognized Provident Fund Public Provident Fund

Employer’s contribution to provident fund Employees contribution Interest credited to provident fund Lump-sum payment at retirement

Exempt from tax

80C deduction available

Fully exempt

Fully exempt

Exempt up to 12% of salary - excess is taxable

80C deduction available Exempt up to notified rate (now 8.5%)

Exempt subject to certain conditions

Not exempt but not taxable every year

No deduction Not exempt but not taxable every year Accu. Contribution of employee is not taxableEmployer contribution + interest thereon is taxable as profit in lieu of salaryInterest on employee contribution is taxed as Income from other sources

NA

80C deduction available

Fully exempt Exempt

Commuted Pension

Government Employees – Commutation fully exempt from tax

Others – 50% of commuted pension will be will be exempt from tax if gratuity is not received and 1/3rd exempt if gratuity is received.

Superannuation Scheme

Voluntary scheme provided by employers

Scheme can be a defined benefit or defined contribution plan (by setting up a trust)

Can be got approved from Income Tax authorities to avail all prevailing benefits on contributions, commutation etc

Exercise

1. Defined Benefit Plans are the following

Gratuity Leave Encashment VRS Provident Fund Annuity from LIC Future Plus Plan 1. All except 5 are true2. Only 1,2,3 are true3. Only 1,2,3,5 are true4. Only 1,2,5 are true

Exercise

2. In Defined Benefit Plan, the investment risk is borne by the

1. Employee2. Employer3. Both employee and employer4. Government of India/State as the case

may be

Exercise

3. Under defined benefit plan, 1. There is no certainty of benefit at the

end of the period2. The benefit depends on the

performance of the investment during the time period of investment

3. The benefit is determined by a certain working which is always constant for companies and has to be paid to the employee

4. The calculation can be changed by the company.

Exercise

4. What is the maximum amount of gratuity an employer can pay?

1. Rs 3,00,0002. Rs 3,50,0003. Rs 5,00,0004. Unlimited

Exercise

5. When gratuity is received from two employers, the maximum amount of exemption should not exceed.

1. Rs 7,00,0002. Rs 3,50,0003. Rs 3,00,0004. Entire amount

Exercise

6. The period of service of 1 year 8 months when not covered under Payment of Gratuity Act will be considered as

1. 2 years2. 1 year3. 1.5 years4. None of the above

Exercise

7. Ram Mohan joins on 1.1.1995 as an officer in an establishment covered under the Payment of Gratuity Act, 1972. He resigns on 30.09.2007. The gratuity rules of the company provide for payment of 21 days gratuity for each completed year of service on terminal salary including basic and DA or gratuity as per Gratuity Act, whichever is higher. For calculation of gratuity as per company’s rules, the month is reckoned as 30 days. What would be the amount of gratuity which is taxable if his last drawn monthly salary was: Basic – Rs 8,000, DA is 60% of Basic pay?

1. Rs 11,520

2. Rs 1,07,520

3. Rs 96,000

4. Rs 2,54,000

Exercise

8. Leave salary received during the tenure of employment by an employee is

1. Fully exempt2. Exempt up to a certain limit3. Fully taxable

9. Salary definition while calculating leave encashment is

4. Last drawn salary5. Preceding 10 months average salary6. None of the above

Exercise

10. Normal retirement age in a company is 60 years. An employee after putting in 30 years of service applies for early retirement at the age of 55 years which was agreed to be the employer. He has 300 days of un-availed leave to his credit for which he was paid leave salary amounting to Rs 3,50,000. His last drawn salary was Rs 40,000 but average of last 10 months salary was Rs 38,500. How much amount of leave salary benefits is taxable?

1. Rs 85,0002. Rs 3,00,0003. Rs 50,0004. Rs 3,85,000

Exercise

11. What is the salary definition for EPF Act, 1952 1. Basic + DA + Commission on Turnover2. Basic + DA3. Basic

12. Out of 12% that the employer contributes what % will go towards EPF?

4. 8.33%5. 3.67%6. 12%7. 1.16%

Exercise

13. Pension provided by an employer after retirement is

1. Taxable2. Tax free3. Tax free upto Rs 1 lac4. None of the above

14. If a person receives gratuity and commuted pension, then _______ of the commuted amount of pension is tax free

5. One third6. Half7. Full8. One fourth

Exercise

15. Abhishek is working for the Finance Ministry since 1.10.93. He is entitled to a salary of Rs 6500 p.m, DA of 40% of basic salary for retirement benefits. He retired from his job on 1.1.2009 (3 months before end of FY 2008-09). He is entitled to gratuity of Rs 98,000, pension from Jan 1 2009 of Rs 2000 p.m., PF of Rs 3,00,000 and Leave Encashment of Rs 36,000. He got 50% of his pension commuted in lump sum with effect from 1.3.2009 and received Rs 1,20,000 as commuted pension. What is the amount of commuted pension which will be taxed?

1. Nil2. Rs 40,0003. Rs 1,20,0004. Rs 80,000

Exercise

16. Manish is working in a private limited company covered under PF Act. His salary is Rs 8,500 per month (Basic Rs 6500 + DA RS 2000). His employer contributes towards employee benefits upto the specified limit only. What would be the contribution of the employer towards A. EPS and B. EPF for Manish?

Rs 239, Rs 541 Rs 780, Rs 239 Rs 541, Rs 239 None of the above

Exercise

17. What is the minimum amount of administrative expenses for EDLI scheme?

1. Rs 22. Re 13. Rs 54. Nil

18. An employee having an average balance of Rs 90,000 in the PF account during the last 12 months dies in an accident. What is the amount of insurance cover payable to his nominee under EDLI scheme?

Rs 50,000 Rs 66,000 Rs 1,00,000 Rs 40,000

Exercise

19. Sahil, age 43 can refinance Rs 1,14,042 at a 20 year rate for 7% and will incur closing cost of 3% of the mortgage amount to be financed in new mortgage balance. What will be the EMI on the mortgage under the circumstances to achieve the objective of no debt at retirement? (Age 60)

1. Rs 781,492. Rs 957.563. Rs 980.574. Rs 986.29

Exercise

20. If the inflation rate is 4.9% and the tax rate is 30%, the required rate of return to maintain the value of investment is

1. 8%2. 9%3. 7%4. 10%

RPEB Employee Benefits

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