2. SALARY DEFERRAL
• Salary deferral means taking some of
employees income and putting it aside for
later. Literally he/she is deferring his/her
salary for later use, usually for use at age 59
½ or thereafter.
• It is an easy and convenient way to save.
• Also sometimes employer offers a matching
contribution to the employee’s retirement
plan. This means if he/she defers some of
his/her salary, the employers contributes
some of their own money to match.
• The higher the tax bracket, the more it makes
4. GRATUITY
DEFINITION:
Gratuity is a part of salary that is received
by an employee from his/her employer in
gratitude for the services offered by the
employee in the company.
Gratuity is a defined benefit plan and is
one of the many retirement benefits
offered by the employer to the employee
upon leaving his/her job.
5. ELIGIBILTY & TAX TREATMENT
ELIGIBILITY :
As per Sec 10 (10) of Income Tax
Act, gratuity is paid when an employee
completes 5 or more years of full time service
with the employer (minimum 240 days a
year).
TAX TREATMENT OF GRATUITY
The gratuity received by the employee is
taxable under the head ‘Income from salary’.
In case gratuity is received by the
nominee/legal heirs of the employee, the
same is taxable in their hands under the head
‘Income from other sources’.
6. TAX TREATMENT
Contd..
• In case of government employees – they are
fully exempt from receipt of gratuity.
• In case of non-government employees covered
under the Payment of Gratuity Act, 1972 –
Maximum exemption from tax is least of the 3
below:
1. Actual gratuity received;
2. Rs 10,00,000;
3. 15 days’ salary for each completed year of
service or part thereof
7. TAX TREATMENT
Contd..
‘In case of non-government employees not
covered under the Payment of Gratuity
Act, 1972 – Maximum exemption from tax
is least of the 3 below:
• Actual gratuity received;
• Rs 10,00,000;
• Half-month’s average salary for each
completed year of service (no part thereof
8. FORMULA FOR CALCULATING
GRATUITY
Gratuity= (last drawn salary/26)* 15 days* No. Of
years of service
where,
last drawn salary= Basic+DA
Completed year of service or part thereof’ means:
• Full time service of more than 6 months is
considered as 1 completed year of service & less
than 6 months is ignored in case of non-
government employees covered under the
payment of gratuity act.
• Less than 1 year is ignored in case of non-
government employees not covered under the
payment of gratuity act.
9. PROVIDENT FUND
• The term Provident Fund is a fund
providing a compulsory contribution for the
future of an employee after his retirement
or for his dependents in the event of his
early death.
• In such fund employee and employer
contribute equally.
• The PF contribution is 12% of Basic salary
from both employee and employer.
• It is compulsory for any organization in
10. Contd...
• Provident Fund comes under EPF -
Employees' Provident Funds and
Miscellaneous Provisions Act, 1952 and
organaized by EPFO - Employees'
Provident Fund Organisation which is a
statutory body of the Government of India
under Ministry of Labour and Employment.
• In terms of Taxation, the employer
contribution towards employees’s PF will
not be taxed from the employee.
11. COMPONENTS TO CALCULATE PF
Currenct Age _____________ Years
Retirement age _________ Years
Current EPF balance _________ INR
Monthly basic pay ________ INR
Monthly dearness allowance ________
INR
Contribution to EPF ___ %
Expected salary hike _____ %
12. TYPES OF PROVIDENT FUND
• CONTRIBUTORY PF:
All work charge Government employees
who were not getting the benefits of
pension are subscribed to this Fund.
A subscriber, at the time of joining the
Fund is required to make a nomination, in
the prescribed form, conferring on one or
more persons the right to receive the
amount that may stand to his credit in the
Fund in the event of his death, before that
amount has become payable or having
13. A subscriber shall subscribe monthly to the
Fund. Rates of subscription shall not be
less than 8% of subscriber’s emoluments
and not more than his total emoluments.
An equal amount is deposited in the
account holders account by the state
government.
16. GROUP INSURANCE
• Group Insurance is an amount paid to
government employees after 60 years of
employment along with the interest.
• Monthly Rs. 30 to 60 is deducted from the
salary of the employee.
• In case of death of employee before 60
years this/her family member is given the
amount.
18. SIGN-ON BONUS
• A signing bonus or sign-on bonus is a sum
of money paid to a prospective employee by
a company as an incentive to join that
company.
• Also known as joining bonus
• It is a one-time payment
• It has to be returned if the employee quits
before a specified period given in the
contract.
• Signing bonuses are often used in
professional sports, and to
recruit graduates into their first jobs.
• The pay varies based on the talent of the
Editor's Notes
An employee may leave his job for various reasons, such as - retirement/superannuation, for a better job elsewhere, on being retrenched or by way of voluntary retirement.
FOR EG. IF D ACTUAL FIG. IS 14YEARS 7mnths it will be considered as 15 yrs.
number of days in a month is considered as 26Eg. If the actual fig. Is 14 years 7mnths it will be considered as 14 years only
(e.g., if the annual salary is lower than he or she desires).They are often given as a way of making a compensation package more attractive to the employee It also lowers the risk to the company as it is a one-time payment; for example, if the employee does not meet expectations, the company has not committed to a higher salary.To encourage employees to stay at the organisation, there are often clauses in the contract whereby if the employee quits before a specified period, they have to return the signing bonus.Some companies give it to all their new joinees, but the amount that they pay varies for the recruits based on the talent of the employee.
