how are social security schemes like gratuity and group insurance helpful to Indian society?
Answers
Answer:
India’s social security system is composed of a number of schemes and programs spread throughout a variety of laws and regulations. Keep in mind, however, that the government-controlled social security system in India applies to only a small portion of the population.
Generally, India’s social security schemes cover the following types of social insurances:
Pension
Health Insurance and Medical Benefit
Disability Benefit
Maternity Benefit
Gratuity
Four main types of pension (all monthly) are offered:
Pension upon superannuation or disability;
Widows’ pension for death while in service;
Children’s pension; and,
Orphan’s pension.
In addition, there are separate pension funds for civil servants, workers employed in coal mines and tea plantations in the state of Assam, and for seamen.
Gratuity
The Payment of Gratuity Act, 1972 directs establishments with ten or more employees to provide the payment of 15 days of additional wages for each year of service to employees who have worked at a company for five years or more.
Gratuity is provided as a lump sum payout by a company. In the event of the death or disablement of the employee, the gratuity must still be paid to the nominee or the heir of the employee.
The employer can, however, reject the payment of gratuity to an employee if the individual has been terminated from the job due to any misconduct. In such a case of forfeiture, there must be a termination order containing the charges and the misconduct of the employee.
Gratuity is calculated through the formula mentioned below:
Gratuity = Last Drawn Salary × 15/26 × Years of Service, where
The ratio 15/26 represents 15 days out of 26 working days in a month.
Last Drawn Salary = Basic Salary + Dearness Allowance.
Years of Service are rounded up or down to the nearest full year. For example, if the employee has a total service of 10 years, 10 months and 25 days, 11 years will be factored into the calculation.
Gratuity is exempt from taxation provided that the amount does not exceed 15 days’ salary for every completed year of service calculated on the last drawn salary (subject to a maximum of US$15,467.62 or Rs 10 lakh). It is important to note that an employer can choose to pay more gratuity to an employee, which is known as ex-gratia and is a voluntary contribution. Ex-gratia is subject to tax.