Ask Mint | Group pension plans have tax advantages for employers

Ask Mint | Group pension plans have tax advantages for employers

The insurance business in India isn’t just growing but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint will feature a Q&A on insurance every Monday.

I am the CEO of an SME (small and medium enterprise). I would like to help my employees plan their retirement years. How do I go about this?

It is good you are concerned about your employees’ future. You could set up a group pension scheme—a product an employer sets up for the benefit of employees. All staff can be members of the scheme. Most life insurance companies offer these products, which are sometimes called group superannuation products. A well-structured group superannuation plan helps to create an irrevocable fund during the working lifetime of employees and provides pension benefits after retirement.

The employer can make a contribution of up to 15% of an employee’s basic salary towards this fund. Employees can also make voluntary contributions to the superannuation fund. These schemes carry certain tax advantages. Currently, investments up to Rs1 lakh per annum in group superannuation schemes by employers for each employee are exempt?from fringe benefit tax.

What kind of tax benefits can I get if I buy an insurance policy?

Life insurance plans get tax benefits under Section 80C and Section 10 (10D) of the Income-tax Act. The benefits are the same in traditional policies or unit-linked insurance plans. The benefit is currently set at Rs1 lakh.

What are the things I need to keep in mind when filling in the insurance form?

Life insurance is veryserious business and you need to be careful when filling in details in the insurance form. Any misleading or incorrect information can result in your claim being rejected in the future. You need to ensure that you fill in the form yourself and are completely honest in entering details regarding health, income and family background. These help the underwriters to determine whether or not you need medical tests so that the correct policy premium can be calculated.

I have decided to invest in a unit-linked insurance plan. I have filled in the form recently and given the premium amount to thecompany. If I decide to withdraw the policy now, what will be the implications?

All insurance firms allow customers 15 days from the date of receipt of policy documents to review the terms and conditions of the policy they have invested in. This is known as “the free-look period". If you decide to cancel the policy, stating the reasons, within the free-look period, the non-allocated premium, plus all charges and the fund value less the stamp duty charges, medical costs and proportional risk premium for the period under cover is payable. But, if you’ve crossed the free-look period, relevant surrender charges will be levied.

Readers are welcome to write in with their queries to The questions will be answered by senior executives from leading insurance firms.

This week’s expert is Bert Paterson, managing director, Aviva India.