Safeguarding the future of the family in the event of one’s unfortunate demise tops the worry list of most people. The Employees Deposit Linked Insurance Scheme (EDLI) enables the employers to relieve their employees of this burden through a life insurance cover. The employer makes a contribution from each employee’s wage, towards this scheme. In the unfortunate event of the death of a member, the scheme provides a death benefit to the beneficiary.Â
EDLI is mandatory by law, making it a statutory liability for all companies to which the Employee's Provident Fund and Miscellaneous Provision Act, 1952 applies and which have at least ten permanent employees. The scheme was introduced by the Central Government with effect from August 1, 1976.
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Birla Sunlife Insurance offers Group Insurance in lieu of EDLI Scheme. Approved by the Central Provident Fund Commissioner, the Group Insurance scheme provides greater insurance cover at attractive premium rates.
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How EDLI Works
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As per the Act, the scheme requires only the employer’s contribution towards the Provident Fund Authorities, to provide a life cover to its members.
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The employer needs to contribute 0.5 per cent of the basic salary of each employee’s wages towards the EDLI, subject to a maximum of Rs 6500. The employer would also need to contribute 0.01 per cent of the monthly wage towards administrative charges to the Regional Provident Fund Commissioner (RPFC).
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The maximum amount payable under the Act is equal to
the average balance in the previous 12 months in the PF account, where such balance is less than Rs 35,000 and
if the balance is greater than Rs 35,000, the average (as stated in pint (i) above)Â in addition to 25 per cent of the balance, subject to a maximum of Rs 60,000.
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As per section 17(2A) of the Employee Provident Fund and Miscellaneous Provisions Acts 1952, the employer may be exempt from contributing to EDLI if he is contributing to an insurance scheme, approved by the RPFC, offering better benefits in lieu of EDLI.
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Eligibility Conditions and Scheme Coverage for BSLI Group Insurance in lieu of EDLI
All members of the Provident Fund scheme in the company would be eligible to be members of this policy.
The minimum and maximum age would be the same as that of the Provident Fund scheme.Â
The employees of the group are provided a Sum Assured the minimum of which is over Rs 62000. The beneficiary of the member would be the same nominee as under the Provident Fund scheme.
With effect from June 24, 2000, the insurance benefit payable would be the average balance in the Provident Fund of the deceased member in the previous 12 months. If this balance exceeds Rs 35,000, the insurance cover would be equal to Rs 35,000 plus 25 per cent of the amount in excess of Rs 35,000, subject to a maximum of Rs. 60,000.
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Benefits
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For the Employee
• On death of the member, his beneficiary receives a higher sum assured based on the member’s prevailing salary and years of service, irrespective of the actual Provident Fund Balance.
• The death benefit is free of tax in the hands of the beneficiary
For the Employer
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• The settlement of claims is professionally managed and is quick and hassle free.
• The premium payable by the employer is usually less than the total contribution being paid by the employer to the Regional Provident Fund Commissioner Tax Benefits
• Premiums paid by the employer are treated as a business expense under Section 37 of the Income Tax Act
Tax Treatment
For the Employee
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• Under Section 17(2) (vi) of the Income Tax Act, the premiums paid by the employer is not treated as a perquisite in the hands of an employee.
• The death benefit is not taxed in the hands of the beneficiary under Section 10(10D) of the Income Tax Act.
For the Employer
• The premiums paid by the employer are treated as normal business expenses for Income Tax purposes under Section 37 of the Income Tax ActÂ