How-to-calculate-Pension-under-EPS

How to calculate Pension under EPS

We have discussed everything about EPS in our series of Articles on EPS.

You can read them

http://www.wealthcafe.in/basics-of-employee-pension-scheme-eps/

http://www.wealthcafe.in/forms-of-eps/

http://www.wealthcafe.in/is-the-monthly-pension-paid-under-eps-just/

Monthly pension calculation (Employed after 16/11/1995)

The pension amount for those employed after 16th November 1995 is calculated as follows:

Pension amount = (Pensionable salary * Service period)/70

In order to calculate the monthly pension, in this case, the following points need to be kept in mind:

  • Pensionable salary is the average income of the preceding 60 months. Most employers have a restriction on pension contribution to either Rs.1,250 or 8.33%, whichever is minimum. In these scenarios, the maximum pensionable salary would be Rs.15,000.
  • Only the basic pay and dearness allowance are considered a salary.
  • If an employee has completed over 20 years of service, then two years should be added as a bonus in the equation. According to the rules, the bonus can be also applied for the service before 16/11/1995.
  • The new rules make it mandatory for the pension to be more than Rs.1,000 per month.
  • An employee is eligible for a pension after completion of 10 years of service.

2.      Monthly Pension Calculation for a member who joined EPF before 15.11.1995 have 3 components in the Pension calculation

a) Procedure for calculating the Past Service Pension

  • The pension is calculated twice based on the period of employment.
  • Once before 16/11/1995 and once after 16/11/1995.
  • For calculation of pension before 16/11/1995, the following table can be used. In this table, the pension is fixed based on the pay and period of service.
Years of past service Up to Rs.2,500 (Salary) Above Rs.2,500 (Salary)
Below 11 years 80 85
Between 11 to 15 years 95 105
Between 15 to 20 years 120 135
More than 20 years 150 170
  • Find out the period that had elapsed between 16.11.1995 and the date of exit and based on this period locates the corresponding Table ‘B’ Factor. Date of Exit is Date of attaining 58 years for superannuation/early pension, Date of Death for widow pension and Date of Disablement for Disablement Pension.
  • Multiply the Past Service Benefit and the Table B factor, which gives the Past.

b) Procedure for calculation of Pensionable Service Pension–

  • Find out the Category of the member as to whether he belongs to X, Y or Z Category.
  • X – Date of commencement of pension is between 16.11.1995 and 15.11.2000 Y – Date of commencement of pension is between 16.11.2000 and 15.11.2005 Z – Date of commencement of pension on or after 16.11.2005.
  • Find out the Pensionable Service and Pensionable Salary of the member and substitute the same in the formula given as below.

(Average Salary X Service)/70

  • If the formula pension calculated is less than 335/438/635 respectively, for X, Y, Z categories, then only that minimum pension is to be given.

c) Procedure for the calculation of Total Pension-Add the Past Service Pension and the Formula Pension.

  • Add the Past Service Pension and the Formula Pension.
  • If the total pension is less than 500/600/800 respectively, for X, Y, Z categories, then that minimum pension shall be the total pension.
  • But this total pension is for an eligible service of 24 years or more, and if the eligible service is less than 24 years, then this total pension has to be proportionately reduced subject to a minimum of 265/325/450 depending on X, Y, Z categories (only when the minimum pension is given).
  • If the total pension itself is more than the minimum, then the proportionate reduction need not be made even if the eligible service is less than 24 years.

Wealth Cafe Tip - We tend to accept EPF the way it is displayed in our passbooks. There is always a scope of error and one should verify every return and investment they are making.

Alternative Assets / Salary - 02/01/2019
achievement-art-camera-970203-1

Investing in Gold

Apart from Fixed Deposits, Gold and Real Estate have been the other favourite avenues for investors in India. Gold particularly has been very close to the heart of Indian families, generation after generation.

Gold acts as a very good investment in times of high inflation as it is a natural hedge to inflation. Also, in times of uncertainties in economies and currency values, investors flock to gold as they consider it the only asset to have real value. There are a number of options through which you can invest in Gold:

 

Jewellery

This is the most popular form of investments by Indian households. Purchase of Jewellery by the women of the house on festive and other occasions acts like an unintended SIP wherein you invest at regular intervals. 

Pros: 

  • Easy to purchase from the next door jeweller.

Cons: 

  • Issues with respect to purity of gold can crop up.
  • Regular use of jewellery results in wear and tear and reduction in the weight of the gold.
  • On sale of the jewellery items, making charges are deducted resulting in lower gains for the investor.
  • Storage of physical jewellery in a safe place is a problem.

Do you have Gold in your Portfolio?

 

Gold Bars and Coins

Gold bars and coins can be purchased from your local jeweller or from a bank. 

Pros: 

  • You can save on the making charges incurred for purchase of jewellery.
  • Gold can be bought in quantities as small as 1 gm.
  • Gold Bars...score over jewellery in terms of purity.
Cons:
  • Safe Storage is again a problem with Gold bars and coins.
  • They are sold at a price higher than the prevailing market price increasing your cost price.
  • Banks do not purchase back gold bars and coins. So you have no option but to sell it to the local jeweller which is generally at a small discount to the market price. 

 

Gold ETFs

This is also known as paper gold. As the name suggest, Gold Electronic Traded Funds(ETFs) can be traded on the Stock exchange. Just like you purchase a share, quantities of gold can be purchased and held in your demat account.

Pros: 

  • No Storage worries as gold purchased is directly credited to your demat account. No Purity Issues as well.
  • Gold can be purchased and sold at real time at the prevailing market prices.
  • Gold can be bought in quantities as small as 1 gm.

Cons: 

  • You need to have a broking and demat account to buy a Gold ETF. Brokerage costs need to be incurred on both purchase and sale of Gold ETF units.

 

Hybrid Funds

Of late a number of Mutual Funds have launched Schemes which invest in a mix of Debt and Gold or Debt, Equity and Gold. Investing in such schemes enables you to get some exposure to the yellow metal.

Pros: 

  • Like all other Mutual Fund Investments, these funds can be a part of your portfolio at no brokerage cost and without a demat/broking account.
  • No Storage costs and no Purity Issues. 
 Cons:
  • Your exposure to gold depends on the call taken by the Fund manager of the scheme.You cannot take exposure in defined quantities.
  • Forced to stay invested in debt/equities as a part of the Hybrid Scheme.
 In the past few years, Gold ETFs have become the most popular form of investment in gold because of their obvious advantages. However, physical jewellery still enjoys the largest share of Gold sales India.
Alternative Assets / Investments - 11/05/2018
4

Post Office - Recurring Deposit

Post office Recurring Deposits (PO RDs) is an instrument that enables regular saving of small amounts. Eligibility: It can be opened by any individual, singly or jointly. Non-Resident Indians (NRIs) are not eligible to open RD account. Investment Limits:  The minimum account balance is Rs. 10 with no maximum limit. Time Period: PO RDs have a the term of 5 years. After maturity of the account, it can be continued for a further period of 5 years with or without further deposits. Withdrawal: One withdrawal(Advance against Deposit) is permitted from the account on completion of one year from the date of opening subject to a maximum of 50% of the balance. However, interest on such advance is charged at 15% per year. The account can be prematurely closed after completion of 3 years from the date of opening. The interest rate on such an account will be payable at the prevailing Post Office Savings Account. Tax Treatment: There is no tax benefit associated with investment in PO RDs. Others: A maximum of four defaults of the monthly installment are allowed in an account. After four defaults the account is treated as 'discontinued'. A discontinued account can be revived by paying the defaulted deposits within two months from the fifth default. If it is not, the account cannot be continued. Wealth Cafe Note: Positives: Very good for regular saving in small amounts at a decent rate of return. Almost Risk-Free returns. Negatives: There are no tax benefits associated with PO RDs. Conclusion: PO RDs are is the best tool for savings small amounts (starting with as low as Rs. 10) on a regular basis.
Alternative Assets / Investments - 10/08/2018

Kisan Vikas Patra (KVP)

Kisan Vikas Patra(KVP) is a safe long-term debt instrument. KVPs are issued by the Government of India. Eligibility: Any individual can purchase a KVP, singly or jointly. Investment Limits:  The minimum amount is Rs. 1000. There is no maximum limit. It is available in the denomination of 5000, 10,000 and 50,000.
Grow your wealth steadily
Rate of Return: KVPs come with a 7.30% rate of return, compounded yearly. Money invested in KVPs doubles in 9 years and 10 months (118 months) Issue of Certificates- In case of cash payment certificate will be issued immediately while in case of purchase by locally executed cheque, pay order or demand draft the same will be issued on realisation of such locally executed cheque, pay order or demand draft as the case may be. Time Period: KVPs have a maturity of 9 years and 10 months. Withdrawal: Investment in the certificate is locked until maturity. If the Certificates are encashed after 2 years and 6 months at values as per the table issued by Post Office. Tax Treatment: Interest on KVP is taxable on an accrual basis and will be taxed as Income from Other Sources. deduction under section 80C is not allowed on this investment. TDS is not deductible on Interest on KVP. Others:The Certificates can be transferred from one person to another after one year from the date of the certificate with the consent of the Postmaster. One can avail a loan against the KVPs by pledging them with the bank. FinPlan Café Note: Positives: Safe long term investments. Negatives: No periodic cash flows are received from investment in KVPs. No tax benefits associated with KVPs. Conclusion: Just like NSCs, KVPs is best suited for one looking for higher assured returns and safety of principal. One will have to compare the post tax returns on NSCs versus KVPs based on the tax slab applicable to each person before making a choice.
Alternative Assets / Investments - 10/06/2018
achievement-bar-business-chart-40140

National Savings Certificate

National Savings Certificate(NSC) is a popular tax saving debt instrument. NSCs are issued by the Government of India. Eligibility: Any individual can purchase an NSC, singly or jointly. Investment Limits:  The minimum amount is Rs. 100. There is no maximum limit. NSCs are available in denominations of Rs. 100, 500, 1000, 5000 and Rs. 10,000. The rate of Return: NSCs come with a 7.6% rate of return, compounded yearly. The government revises this rate very quarter. Time Period: NSCs have a maturity of 6 years. Withdrawal: There are 2 maturity periods, 1 for 5 years and then for 10 years. No premature withdrawal is permitted in NSC. NSC states that there is a possibility of withdrawal only on special cases which are mentioned as below.
  • On death of holder or any holders in case of joint holding;
  • on forfeiture pledge by Gazetted Govt. Officer
  • When ordered by court of law.
Tax Treatment: Amount used to purchase NSCs qualify for deduction under Section 80C. But the interest earned on NSC is taxable. However, the interest that accrues each year is automatically re-invested also qualifies for deduction under Section 80C in the year of accrual.No TDS is deducted on the payout. Others: The Certificates can be transferred from one person to another after one year from the date of the certificate with the consent of the Postmaster. One can avail a loan against the NSCs by pledging them with the bank. FinPlan Café Note: Positives: The interest that accrues each year and is automatically re-invested qualifies for deduction under Section 80C. Negatives: The interest is not paid out periodically, it accrues half yearly and is re-invested. The interest earned on the NSCs is taxable. Conclusion: NSC is best suited for one looking for assured returns and safety of principal. Tax deduction is an added benefit.
Alternative Assets - 10/05/2018
gold

Gold Exchange Traded Funds (Gold ETFs)

In turbulent times, gold has shown up as an effective hedge against equities in a portfolio. Though there are many ways in which one can exposure to gold, investing in Gold ETFs stand out because of its many advantages and convenience.

Gold ETF is an Exchange Traded Fund that aims to track the price of gold. Just like how equity shares of a company are bought and sold on the Stock Exchange, Gold ETFs can be bought and sold on the Stock Exchange at the prevailing market price of gold.

How to Purchase: To be able to purchase a Gold ETF, one needs to have a Demat account and a trading account with any broker. Gold ETF's are traded in units wherein one unit represents one gram of gold.

This means when you buy one unit of a Gold ETF, you are buying one gram of gold and that one unit(gram) of gold will be credited to your Demat account. In case of some Gold ETFs, one unit can represent half a gram of gold. Just like equity shares, you will have to incur brokerage costs when you buy or sell Gold ETF units.

Taxation: If the units of Gold ETF are held for less than one year, then you will have to pay short-term capital gains on such sale. If the Gold ETFs are held for more than one year you can pay either at a 10% tax rate on the gains without indexation or a tax rate of 20% with indexation, whichever is lower.

GOLD ETFs in India: India has the following Gold ETFs as on date:

  1. Birla Sun Life Gold ETF
  2. Goldman Sachs Gold ETF
  3. Religare Invesco Gold ETF
  4. Quantum Gold Fund
  5. SBI Gold ETF
  6. IDBI Gold ETF
  7. R*Shares Gold ETF
  8. Axis Gold ETF
  9. Kotak Gold ETF
  10. ICICI Prudential Gold ETF
  11. UTI Gold ETF
  12. HDFC Gold ETF
  13. Can Gold ETF

 

Gold ETFs are being traded in India since March 2007. Benchmark Asset Management Company Private Ltd. was the first to put in the proposal for gold ETF with the Securities and Exchange Board of India (SEBI). However, that is no longer offered on the exchange.

 

Advantages of Gold ETFs:

(a) An investor can purchase gold in small amounts as one unit of the ETF represents one gram. These small amounts can be accumulated over a period of time.

(b) As the gold purchased is credited to your the account, there are no hassles with respect to storage of gold purchased.

(c) Compared to the purchase of physical gold, there are no worries with respect to the quality of gold purchased.

(d) Gold can be bought and sold at the prevailing market prices with no deductions with respect to making or handling charges.

(e) Compared to physical gold which has to be held for more than three years, Gold ETFs qualify for Long Term Capital gains if held for more than one year.

 

Gold ETFs have become the mode of investment in recent times and have been growing at a rate of over 50%.

 

Alternative Assets / Mutual Funds - 09/08/2018
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EDLIS - Employee Deposit Insurance Scheme

We have discussed the basic contributions of EPF and how the money is invested, contributed and received by the employees. There is a component called EDLIS (Employee Deposit Insurance Scheme) of EPF contributions. We have discussed the features of EDLIS as under:

  • The EDLI scheme was launched in 1976 and applies to all employers who provide the Employee’s Provident Fund (EPF) provisions to their employees. The point of the scheme is to provide life insurance coverage to all their employees.
  • The EDLI Scheme is clubbed and linked to the EPF Scheme and EPS scheme. All employees who subscribe to the EPF scheme are automatically enrolled in the EDLI scheme.
  • All of the employees’ contribution goes toward the EPF scheme. The employees do not contribute to EDLIS. Contributions are made by the employer.
  • EDLI contribution by Employer: 0.50% (subject to a maximum of INR.15,000)

Features and benefits of the EDLI scheme:

  • The Claim amount under the EDLI Scheme is 30 times the salary. Salary is calculated as (D.A. + Basic Salary).
  • A bonus of INR 1,50,000 is also payable along with the claim amount.
  • The quantum of coverage is directly linked to the salary of the employee.
  • The premium payable is similar for all employees.
  • Payments are made by the employer to the Provident Fund Authorities.
  • Under Section 17 (2A) of the Act, the employer can opt-out of contributing to this scheme if the employer has already opted for a better insurance policy for its employees under a different scheme.
  • In lieu of EDLI, the employer can also opt for schemes like the LIC Group Insurance Scheme.

EDLI claim procedure:

  • The amount payable can be claimed by the nominee of the employee.
  • In case there has been no nominee named, the surviving family members of the deceased can claim the amount.
  • Under the claims to be made by surviving family members, claims cannot be made by the oldest son or married daughters whose husbands are still alive.
  • In case there is no nominee or eligible surviving family member, the claim can be made by the legal heir.
  • In case the nominee, surviving family member, or legal heir is a minor – the claim can be made by the legal guardian.
  • In order to initiate the claims process, Form 5(which can be found here http://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/Form5IF.pdf) should be duly filled out and submitted.
  • While filling out the claim, it should be kept in mind that: The EDLI Claims are only admissible if the deceased person was actively employed at the time of death. The application for the claim must be attested by the employer.

In case the employer is not available to attest the claim application, the attestation must be done with the official seal of either:

Documents required for a claim under the EDLI scheme

  • Death certificate: of the EDLI member.
  • Guardianship Certificate: If the claim is being made on behalf of a minor family member, nominee, or legal heir, the legal guardian must also submit a guardianship certificate.
  • Succession certificate: If the claim is being made by a legal heir of the deceased.
  • Canceled cheque: of the bank account of the claimant in which claim funds are to be deposited.

Example

Mr. Nath was employed and was actively contributing to the EPF, EPS, and EDLI schemes. He drew a monthly salary of Rs.15,000. Upon his death, his nominee claimed the EDLI insurance benefit which was equal to (30 x Rs.15,000) + (Rs.1,50,000) = Rs.6,00,000.

 

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

 

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    Alternative Assets / Salary / Tax - 09/04/2018
    111

    PO MIS

    Post Office Monthly Income Scheme (PO MIS) is a scheme run by the Indian Post Office. It is also best suited to meet the monthly requirements of retired individuals. Eligibility: Any individual can open a PO MIS account, singly or jointly. Multiple accounts can also be held subject to the overall investment limit. Non-residents and HUFs are not eligible to open an account under this scheme. Investment Limits: Minimum amount required to be invested in this account is INR 1,500 and the maximum amount that can be invested is INR 4,50,000 in case of a single account and INR 9,00,000 in case of a joint account. Rate of Return: The PO MIS account earns an interest of 7.3% per annum payable to the investor at the end of each month. Interest not withdrawn does not earn any interest. A bonus of 5% on principal amount is admissible on maturity in respect of MIS accounts opened on or after 8.12.07 and up to 30.11.2011. No unutilized is payable on the deposits made on or after 1.12.2011. Time Period: This account has a maturity period of 5 years. Tax Treatment: Amount deposited in this account do not enjoy any tax deduction. The interest earned is also taxable. However, no TDS is deducted on the payout. Others:The interest earned on the account can be transferred to another savings account every month. WealthCafe Note: Positives: PO MIS is the most preferred Investment Avenue for those looking for regular assured monthly income. Even SCSS pays out intererst only quarterly. Negatives: The interest earned on the deposit is taxable. The maximum amount a person can deposit is only Rs. 4,50,000 (Rs. 9,00,000 for a joint account). Conclusion: PO MIS should rank very high on your list when planning for investing your funds post your retirement. Just like under SCSS, having the monthly interest transferred to a savings accounts enables you to earn interest on the unutilised amount in the savings account.
    Alternative Assets - 08/20/2018

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