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Three Social Security Schemes For Prosperity

By Anubha Yadav July 27, 2016

INTRODUCTION

Since the time Modi led government has come into force, it has been burdened with sky high expectations of reform. The Union Budget of 2015-16 was the first full budget that was presented by the newly elected government and it clearly did not disappoint us, for it gave due importance to all sections of the economy. Keeping the infrastructural development as its main agenda the budget introduced various schemes for all sectors of our society especially in the sector of health, education, pension and insurance, etc.

Bearing numerous economic problems such as inflation, global commodity price crash, etc., in mind the Finance Minister had presented a very credible budget which can be dubbed as a budget for the common man. The new Budget seemed to provide a balanced policy framework aimed at supporting everyone from the common man to the corporate[1]. The Finance Ministry announced detailed guidelines for three social security schemes in the Budget. Though anyone can enrol in these schemes and avail of its benefits, it was primarily formulated to cover workers engaged in unorganised sectors apart from the poor and vulnerable sections of the society[2]. These comprise a pension scheme and two insurance schemes for the welfare of the mass.

 

ANALYSIS

“Worryingly, as our young population ages, it is also going to be pension-less,” Union Finance Minister Arun Jaitley said while presenting the Budget for 2015-16 in the Lok Sabha.[3] The Budget he said was proposed to work towards creating a universal social security system for all Indians, especially the poor and the underprivileged. The GOI had a few years ago launched a pension scheme called ‘Swalamban’. Unfortunately it failed to draw enough investors. Swalamban’s failure prompted the government to launch a modified scheme.. The new scheme i.e. Atal Pension Scheme (APY) which is governed by the Insurance and Regulatory Development Authority of India (IRDA) has its focus on all the citizens in the unorganised sector who have joined the National Pension System (NPS) but are not members of any statutory social security scheme. APY entitles them to a pension ranging between Rs.1,000 to Rs.5,000 per month after 60 years of age. Each employee will be given a retirement number after registering under APY with which he can track easily track his investments. The fixed pension will be based on the contributions made by an individual.  The contributions would vary upon the age of joining the scheme. The minimum age of joining APY is 18 years and maximum age is 40 years. Therefore, minimum period of contribution by the subscriber under APY would be 20 years or more.

The benefit of fixed pension would be guaranteed by the Government. The Central Government would also co-contribute 50% of the subscriber's contribution or Rs. 1,000 per annum, (whichever is lower), to each eligible subscriber account, for a period of 5 years, that is, from 2015-16 to 2019-20, who join the NPS before December 31 this year and who are not income-tax payers.[4] The existing subscribers of ‘Swavalamban’ Scheme i.e. the old scheme would automatically be migrated to the new scheme, unless they specifically opt out of it.

The Pradhan Mantri Suraksha Bima Yojana is another scheme, which is mainly for accidental death. The risk coverage for accidental death is Rs 2 lakhs whereas for partial disability the risk coverage is Rs. 1 lakh. The benefits of this scheme are available to people in age group 18 to 70 years who have a bank account. They would be required to pay a minimum premium of Rs. 12 per annum or Re 1 per day. The scheme is set to be offered by all public sector general insurance companies and all other insurers who are willing to join the scheme and tie-up with banks for this purpose. Any person having a bank account and his Aadhaar number (linked to the bank account) would be able to avail of benefits arising from the scheme if he fills up a simple form and submits it to the bank every year before by June 1[5].

Bearing in mind low number of  health insurance penetration in India (which is only around 5% of all insurance policies and which comprises only about 13 - 15% in urban areas) the government launched another insurance scheme to provide life insurance cover i.e. Pradhan Mantri Jeevan Jyoti Bima Yojana. This scheme provides for risk coverage of Rs. 2 lakh in case of death for any reason whatsoever. This scheme is available to anyone holding a bank account and aged between 18 to 50 years. People who join the scheme before completing 50 years can continue to have the risk of life cover up to the age of 55 years subject to the payment of premium. The subscribers need to pay a premium of Rs. 330 p.a. The scheme would be offered by Life Insurance Corporation and all other life insurers who are willing to join the scheme and tie-up with banks for this purpose.

The premium under both the schemes will be directly auto-debited by the bank from the subscribers’ account and a person will have to opt for the scheme every year. He can also prefer to give a long-term option of continuing in which case his account will be auto-debited every year by the bank.

These three schemes not only provide for social security by the way of fixed pension and risk covers but also provide a tax benefit of additional Rs 50,000. As per Section 80C of the Income Tax Act[6] a person is eligible for certain deductions from his income tax if he makes certain investments and expenditures[7]. Earlier if such investments and expenditures together totalled to Rs.1,00,000 or above a person was eligible for  exemption under Section 80C, 80CC, 80CCC of the Income Tax Act. This limit has now been raised to Rs.1,50,000 per annum as per the amendment in Income Tax Act, 1961 through Finance Act of 2015[8]. A contribution upto 10% of salary or 10% of the gross total income to notified pension scheme of Central Government is only eligible for deduction.[9] Which means that the income gets reduced by Rs.1,50,000 and the persons ends up paying no tax on it at all. On health insurance premium paid for self and family a deduction upto Rs.15,000 was allowed[10] and in case of health insurance premium for parents there is an additional deduction upto Rs.15,000.[11] This deduction is now increased to the limit of Rs.25,000 for self and family and from Rs.20,000 to Rs.30,000 for senior citizens[12].

 

CONCLUSION

This budget seems to be a budget for the development of the poor. The new schemes are nothing but a government driven investment for fixed returns to the common man in future. But except for the tax rebates there is not much motivation for the common man to opt for these schemes.. Therefore, the government might face a little difficulty in inviting people to invest in these schemes at the initial stage. But with the flow of time and better awareness about the benefits, the additional deductions would certainly encourage investment in pension schemes which in turn will enable India to become a pensioned society instead of a pension less society.

All the contributions under these social security schemes shall be transferred from subscribers’ Jan Dhan accounts directly and the accounts will be linked with the Aadhar numbers. This not only will make it compulsory for every citizen to have a bank account but also to have a unique identity number through Aadhar Card which will give a new direction to the schemes already launched by the government. These schemes reflect the government’s intention that no person suffers from pain due to illness or old age. This will also help to realise the dream of 'One India, Great India' and bring the country on the path of prosperity through 'Sabka saath, Sabka vikas' i.e., equal cooperation and contribution from both citizens as well as the government.

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[1] http://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-tax-india-budget-2015-analysis.pdf

[2] http://www.thehindubusinessline.com/economy/govt-announces-details-of-new-insurance-pension-schemes/article6950744.ece

[3] http://www.dailymail.co.uk/indiahome/indianews/article-2973762/India-budget-2015-Jaitley-insures-Aam-Aadmi-Government-launch-two-insurance-schemes-lower-income-groups.html

[4] http://www.thehindubusinessline.com/economy/govt-announces-details-of-new-insurance-pension-schemes/article6950744.ece

[5] http://articles.economictimes.indiatimes.com/2015-02-28/news/59612737_1_jan-dhan-accounts-budget-2015-life-insurance-plan

[6] Deductions allowable to tax payer

[7] The investments that fall under Section 80C can be broadly classified as contributions / investments to: • Provident Fund • Public Provident Fund • Life insurance premium • Pension plans • Equity Linked Saving Schemes of mutual funds • Infrastructure bonds • National Savings Certificate

[8] http://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx

[9] Section 80CCD (1) of Income Tax Act: Deduction in respect of Contribution to Pension Account

[10] Section 80CCC: Deduction in respect of Premium Paid for Annuity Plan of LIC or Other Insurer

[11] Section 80D: Deduction in respect of Medical Insurance

[12] http://www.goodreturns.in/personal-finance/planning/2015/03/new-pension-scheme-2015-should-you-invest-the-same-342189.html

TAG: Atal Pension Scheme (APY) , Pradhan Mantri Suraksha Bima Yojana , Pradhan Mantri Jeevan Jyoti Bima Yojana. , BJP , Three schemes for prosperity , accidental death , National Pension Scheme , unorganised sector , 'Sabka saath , Sabka vikas


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