NAME SINGH RASHMI. ZAVERI MOHIT. JAIN ABHISHEK. VIRA URVI.

ROLL NO 38 44 48 42

AT THE OUTSET OF THIS PROJECT WE, STUDENT OF S.Y.B.B.I WE WOULD LIKE TO THANK OUT |PROF. SANDEEP} FOR GIVING US AN OPPORTUNITY TO SUCH AN INNOVATIVE PROJECT IN THE SUBJECT OF TAXATION IN BANKING & INSURANCE

WE WOULD ALSO LIKE TO THANK OUT GROUP MEMBER FOR CO-OPERATING & PUTTING IN THE EQUAL EFFORT FOR THE COMPLETION OF THE PROJECT.

WE ALSO THANK OUR PRINCIPAL MRS. MALINI JOHARI & OUR COORDINATOR SANSKRITI MAM

CONTENTS
Introduction: Gratuity, Pension n Leave Encashment Gratuity: When are you entitled? How much can you get? Tax treatment Pension: How does a pension work? What its benefits? Leave Encashment: How to calculate leave encashment? Features n benefits of group leave encashment plan How much of amount is taxable/exempt nder income tax act? Conclusion

INTRODUCTION
Gratuity: A tip (also called a gratuity) is a voluntary extra payment made to certain service sector workers in addition to the advertised price of the transaction. Such payments and their size are a matter of social custom. Tipping varies among cultures and by service industry. Though by definition a tip is never legally required, and its amount is at the discretion of the patron being served, in some circumstances failing to give an adequate tip when one is expected is a serious faux pas, and may be considered very miserly, a violation of etiquette, or unethical. In some other cultures or situations, giving a tip is not expected and offering one would be considered at best odd and at worst condescending or demeaning. In some circumstances, such as with U.S. government workers, tipping is illegal. Pension: In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum. The terms retirement plan or superannuation refer to a pension granted upon retirement. Retirement plans may be set up by employers, insurance companies, the government or other institutions such as employer associations or trade unions. Called retirement plans in the USA, they are more commonly known as pension schemes in the UK and Ireland and superannuation plans in Australia and New Zealand. Retirement pensions are typically in the form of a guaranteed life annuity, thus insuring against the risk of longevity. A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Labor unions, the government, or other organizations may also fund pensions. Occupational pensions are a form of deferred compensation, usually advantageous to employee and employer for tax reasons. Many pensions also contain an additional insurance aspect, since they often will pay benefits to survivors or disabled beneficiaries. Other vehicles (certain lottery payouts, for example, or an annuity) may provide a similar stream of payments. The common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal and/or contractual terms. A recipient of a retirement pension is known as a pensioner or retiree.

Leave Encashment: Leave encashment is the amount payable for the employee's leave period, depending upon the leaves to his credit and his salary at the time of termination of employment or at the time of en cashing his leaves.

GRATUITY When are you entitled? Gratuity in earlier days was rather arbitrary and completely hostage to the whims of the employer. A wealthy, well-established employer would reward his dedicated employees and the not so rich would refuse such generosities. This led to a lot of discord and finally the government stepped in, passing the Payment of Gratuity Act, 1972, making it mandatory for all employers with more than 10 employees to give them gratuity. Employees, as defined here, are the ones hired on company payrolls. Trainees are not eligible and gratuity is paid on the basis of the employee's basic plus dearness allowance if any. How much can you get? You become entitled to a gratuity on resignation or on retirement after five years or more of service. As per the Act, the gratuity amount is 15 days' wages multiplied by the number of years put in by you. Here wage means your basic plus dearness allowance. Take the monthly salary drawn by you last (basic plus dearness allowance) on resignation or retirement and divide it by 26, assuming there are four Sundays in a month. This is your daily salary. Multiply this amount by 15 days and further with the number of years you have put into service. For instance, if your average monthly salary is Rs 50,000, the gratuity payable to you after 10 years of service would be Rs 290,000. However your employer factors in another term: 'uninterrupted service'. The term covers the service period of the employee including leaves or breaks, except periods notified as breaks in service by the employer. For employees who do not fall under the Gratuity Act, the amount due for them is half of the average ten months' salary multiplied by the number of years of service.

Tax treatment As per the formula under the Act, gratuity up to Rs 350,000 is exempt from taxes. In the above example, the entire money is tax-free. However, for government employees any amount is non-taxable. Your employer could choose voluntarily to pay you more gratuity; but any extra benefit that he pays, not coming under the formula, will be taxable. For instance, in the above example, if the employer pays you Rs 350,000, the entire money is not tax exempt; only the Rs 290,000 due under the formula is. Says Sibranjan Patnaik, senior vice president and head, group business, Max New York Life: "Be it a lump sum above the due amount, or money that you get before the stipulated five years, the employer is free to give you extra benefits. However, these sums are taxable if they exceed the specified limit under the Act. In case of death of the employee, the heir is entitled to the gratuity immediately and the entire amount is tax-exempt. However, if death occurs after the gratuity is due then any amount above Rs 350,000 is taxable. The employer could also offer you an extra gratuity by deducting a portion of your salary as the cost to the company. At the time of joining the Organization, ask your employer for all the details concerning gratuity and how to calculate it. To meet its liabilities towards gratuity, a company either funds the money from its own pocket, or opens a trust and puts in money for the gratuity fund. This fund is then managed either by an insurer or an actuarial company. Adds Patnaik: "Insurers also offer a life insurance in group gratuity policy which could be a standard cover or vary across employees." Ask your employer if there are any extra covers to be availed. There are clear guidelines on how your gratuity money can be invested. Insurers, like service policyholders, have two opt-ions: traditional and unit-linked plans. While a traditional plan has little exposure to equities, a unit-linked plan can invest up to 60 per cent in equities. Says Tarun Chugh, senior vice-president and head, group business, ICICI Prudential Life Insurances: "We have four funds ranging from 100 per cent debt to 40 per cent debt. However, we advise companies to choose up to 20 per cent in equities since it is a defined benefit scheme and attritions exist."

Pension How does a pension work? Investing in a pension plan is very simple:
 

You make regular payments during your working life. Your payments are then invested in one or more of a range of professionally managed funds and remain invested until you retire. Charges and investment performance will affect the fund value. At retirement any money held in your pension fund is normally used to provide an income. Your pension income will be taxed as earned income. You may be able to take part of your pension fund as a tax-free lump sum which means you will receive a smaller pension. Payment in pension are flexible:

  

decide how much to pay, pay additional single payments when you have spare money, Decide when you want to retire (subject to scheme rules). What are the tax benefits? For most people, every payment you make is entitled to basic-rate tax relief. If you are a higher-rate taxpayer, you may be able to reclaim the extra tax relief through your tax return. For example, if you pay tax at 40% and your whole payment qualifies for tax relief at this rate, it will in effect only cost you 60 to invest 100. How the total payment is made up is shown below:

With effect from 6 April 2011, some higher-rate taxpayers may stop being eligible to receive extra tax relief. They may also suffer a tax penalty if they try to increase payments they make to their pension before this date. For further information, please read our fact sheet 'Tax changes to pension plans announced in the 2009 budget' (GEN568), or speak to your financial adviser. The information given here is based on Standard Life's current understanding of law and HM Revenue and Customs practice. The example of tax relief shown above is based on a group personal pension arrangement. Tax and legislation are likely to change in the future. Tax relief may alter and its value depends on your financial circumstances. Your pension in retirement will be taxed as earned income.

Leave encashment (1)In case of government employee the full amount of leave encashment is exempt from tax (2)In case of other employees leave salary is exempt to the extent least of following: (a)Encashment of earned leave not exceeding 30 days per each completed year of services. (b)10 months average salary on the basis of salary drawn for the 10 months immediately preciding the date of retirement. (c)Government notified amount Rs.3,00,000. (d)Amount actually received 1,50,000. Note (1): After comparing above 4 amounts the least amount will be deducted from actual amount received and balance will be taxable. Note (2): Definition of salary = basic + DA + commission How to calculate leave encashment? (1) Familiarize yourself with the details. Know how your company classifies the leaves. Find out if the company segregates leaves into different categories or just lumps it into a general category. Each company has its own policies on categorizing leaves, such as classifying them into sick days and vacation days. Find out how many paid leaves you are entitled to as stated on your employment contract. The number of allowable days depends

on your employer. Know if your company allows conversion of unused leaves to cash. Some companies would have policies wherein unused leaves can be carried over to the following year. Check a copy of the company policy and procedure or ask your officer. (2)Find out how many paid leave days you have left. Most companies keep track of the number of times you have taken paid leave. You can also keep your own records. Note the number of paid leaves you have already taken. For example, your company will allow you 15 days paid vacation time. You were able to confirm from your employer that you have already taken 10 days from your allowable paid vacation time. That would mean you have 5 days of unused paid vacation time. (3)Compute how much you are getting paid a day. Find out how much you are getting paid per month. Divide that amount with the number of days you work in a month. For example, let us say you are being paid $1,000 a month and that you work 20 days a month. The computation would be $1,000 divided by 20. The result would be 50. That means you get paid $50 for each day of work. (4)Multiply your unused paid vacation days by the amount you get paid in a day. Using the same example that we used earlier, you multiply 5 days by $50. The product would be $250. That would be the amount your employer gives you when you en cash your unused leaves.

Features and Benefits of Group Leave Encashment Plan Multiple Investment Options: Choice to invest across multiple fund options to give you a flexible investment pattern. Switching Option: While you have chosen a fund option, you have the flexibility of switching between our various funds at any time. Switching between the various funds is allowed depending upon your requirements. We offer unlimited free switches; however, the minimum value of such switch has to be Rs. 10,000. Premium Redirection: The annual contributions can be redirected for investments into a fund of your choice and need not adhere to the original investment pattern. Life insurance cover: (subject to a minimum of Rs. 1000/- per employee) thus, promising protection on the life of your employee at nominal cost. How much of such amount is taxable/exempted under Income Tax Act: Meaning of Earned Leave Normally in pay package of the employee two day or so is allowed as leave per month and if this leave is not availed then it will be accumulated subject to certain maximum limit and at the time of retirement/otherwise or on leaving the employer, pay equivalent to leave remaining unutilised in the employee account will be paid to employee. (rules varies from organisation to organization).This type of leave is called Earned Leave and amount received in lieu of this unutilised amount is called leave salary/leave encashment. (A)Leave salary received by anyemployee during the period of service.

Leave salary received by any employee during the period of service is fully Taxable. however relief under section 89 read with rule 21A can be claimed (Circular no 431 Dated September 12,1985)

(B)Leave Salary to At the time of Retirement /superannuation or otherwise.

Leave salary given to Central/State Government employees at the time of retirement /superannuation in respect of period of earned leave at his credit ,is fully exempted.{section 10(10AA)(i)}

Maximum Amount Specified to be exempted From time to time: The amount has been last revised in 1998 and after that period DA of the employee has been increased by 100 % but this amount has not been increased then so even by rate of inflation also this amount should increased to 6.00 lacs at least. What do you think????.It seems from the cahrt that in period 1986 to 1987 the maximum amount was linked with the DA increase but after that periodical review has been started. In my view this amount should be linked to DA increase and should be declared at least in one year like Cost inflation index used for capital gain calculation.

Conclusion:

It is the lump sum amount received by an employee at the time of retirement,resignation,death etc .It is exempt from tax depending on the type of employee receiving it but gratuity received while in service it fully taxable. Pension is a monthly payment by the X employee to a retired employee which is tax as salary and this is called un commuted pension which is taxable for government as well as pvt employee. It means cash received by an employee against leave earn but not taken and accumulated leave encashment while in service is taxable but leave encashment receive at the time of retirement is exempt.