FAQ >> Leave Encashment FAQs

General information about a Group Leave Encashment scheme
SBI Life - CapAssure Leave Encashment Scheme
 

General information about a Group Leave Encashment scheme

 
1.
What is Leave encashment?
Usually organizations permit their employees to accumulate their leaves over a period of time, which can be encashed at a later stage. The Leave that is encashable in business parlance is referred to as 'earned leave.'
 
2. What are the types of Leave Encashment Schemes?
Leave Encashment rules can vary from organization to organization. Following are some of the scenarios:
 


Leave is either utilized during the year or accumulated at tm
Leave (earned leave / sick leave) can be accumulated till it reaches a certain capped limit, say 60 days. Leave Balance over and above this limit lapses.
The maximum number of accumulated leaves is usually capped (eg. 240 or 300 days)
Leaves can be encashed in all or some of the instances - retirement, resignation or while in service. The leave rules should be clear on the treatment in all the cases.
 
3.
When does an employer have to provide for Leave Encashment in his books of account?
As per AS-15(R), employee benefits are categorized into long term and short term benefits. A long term liability is created if the benefit is payable after more than one year and a short term liability is created in the benefit is payable within a year.

If the lave encashment rules provide that the balance leave will be encashed and paid to employees within the year, then it is a short term liability. No provisioning in the books of accounts is to be done in this case.

However if the leave can be accumulated for a period of more than 12 months, then the liability has to be actuarially determined and provided for on the balance sheet date.
 
4. What are the tax implications under a Leave Encashment scheme?
  For Employer:
 
The cash equivalent of the leave Encashment Benefit as and when paid by the employer is deductible from his income under section 43B (f) of the Income Tax Act.
The amount of risk premium paid for Life Insurance cover will be treated as business expenses.  
  For Employee:
 
 
For the Employee the leave encashment benefit is taxable under section 15 of the Income Tax Act
However the benefit received by the employee at the time of retirement, gets tax relief as per section 10(10AA) of Income Tax Act, subject to maximum of ten months leave.
 
5. How leave encashment is taxed differently for government and non government emplyees?
Leave Encashment is taxed differently for Government and non -government employees:

Government employees: Leave encashed during the continuation of service is taxable .
Leave encashed at the time of retirement or superannuation (leaving the job) is exempt from tax.

Non-Government employees: Leave encashed during the continuation of service is taxable.
In case of leave encashed at the time of retirement or superannuation (leaving the job) the exemption is limited to the least of the following:
 



10 month's average salary;
Rs. 2,40,000;
Amount actually received
Cash equivalent of leave salary standing to his credit not exceeding 30 days for each year of actual service
The limit on exemption is applied on the total payment received towards leave encashment from two or more employers, in the same year or in different years
 
6. Is TDS applicable for the leave encashment payment under CA-LE?
It is the responsibility of trustees to deduct tax as per the provisions of the income tax rules and no TDS will be deducted from SBI Life's end.
 
7. Is it compulsory to form a trust to fund the leave encashment liability?
No. Unlike in the case of Superannuation and Gratuity, funding leave encashment scheme does not require formation of a trust.
 

SBI Life - CapAssure Leave Encashment Scheme
 
8. What is SBI Life - CapAssure Leave Encashment Scheme (CA-LE)?
It is a Non-Participating yearly renewable traditional group leave encashment scheme
 
9. What is the target segment for CA-LE?
All employers who wish to provide for the accrued liabilities in respect of Leave Encashment benefits available to all the employees in the books of final accounts.
 
10. What are the boundaries for this plan?
Boundaries for this plan are as follows:
 

Term: Yearly renewable group leave encashment scheme.
Life Cover: Life Cover can be revived within two years from the first due but unpaid premium, subject to payment of risk premium for the future
Age at Entry (as on last birthday):
  » Minimum -: 18 years of age
» Maximum - Lower of (Retirement age less one year or 79 years of age)
 


Group size has to be minimum 10 & Maximum no limit
Minimum amount of contribution (Annual Contribution + Initial Contribution) to be made is
Rs 50,000/-
Payment Frequency:
    » Annual Contribution: Can be paid on the yearly, half yearly, quarterly or monthly basis .
» Life Cover premium: To be paid annually in advance.
 

Minimum Sum Assured is Rs.1000/- and maximum as per scheme rules
Grace Period: 30 days for Risk Premium
Revival Period: 2 years
 
11. What are the key features of CA-LE?
Some of the key features of this scheme which makes it distinct:
 




Capital Guarantee on Funds under Management
Unique Pooling Fund Advantage
Additional Funding upto 3% to absorb exit penalty charged by the previous insurer
Additional Benefits for employee through SBI Life - Group Accidental Death and Permanent DisabilityRider
No Suicide exclusions
Partial Transfer
 
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Is there any Capital Guarantee under CA-LE?
We assure Capital Guarantee. Capital guarantee implies that a positive investment return will be declared at the end of each financial year. Hence, your funds under management are guaranteed.

Are there any Guaranteed Returns under CA-LE?
Capital is guaranteed, not rates of returns to be declared.

What are the options with respect to the life cover under CA-LE?
Following are the life cover options (subject to 'Active at Work clause') under this scheme:
 



Minimum flat cover of Rs 1000
Future service liability based
Multiple of salary (5 times)
Graded cover
As per employer
 
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16.
What is 'Active at Work' Clause?
Active at Work" means "The employee should not have remained absent or availed leave on the grounds of health for a continuous period of 20 days or more in the year preceding his admission into the scheme".
Employee not "Active at Work" at the time of commencement of risk can be covered after the completion of underwriting requirements as per underwriting rules at that time, to the satisfaction of SBI Life, done solely at the cost of the employer. However, SBI Life can receive contribution towards the employee's Leave Encashment liability.

When does the life cover cease to exist under CA-LE?

Risk Cover for the member shall automatically cease on occurrence of any one of the following events:
 



Termination of the master policy
Member attaining the maximum age of cover as defined in master policy subject to maximum of 80 yrs.
Death of the Member
On expiry of the grace period for the risk premium payment due.
Member ceases to be a member of the group as defined in the scheme rules.
 
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What is Free Cover Limit (FCL) under CA-LE?
FCL is the life cover upto which a member need not undergo underwriting, provided he is active at work on the date of commencement of risk.

What are the Benefits available under CA-LE?

In case of Death:
   
In case of the unfortunate death of an employee whilst in service, Accrued Leave Encashment Benefit, as per scheme rules will be payable + Basic Sum Assured as opted for by the master policy holder + Rider Sum Assured, if any, in case death due to accident.
 
  In case of exit due to Resignation /Termination/ Retirement:
   
On exit due to above reasons, accrued Leave Encashment benefits as per scheme rules is payable
 
  Exit due to Permanent Disability/Total permanent disability or ill-health or any other reason:
   
Accrued Leave Encashment benefit as per scheme rules + Rider Sum Assured, if any, in case of TPD is due to an accident.
 
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What are the exclusions that apply under CA-LE ?
There are no exclusions that are applicable for basic cover in this plan including suicide exclusion, however rider specific exclusion apply.

What is the Investment Pattern under CA-LE?
Investments are done based on IRDA's investment guidelines.

What is the Interim Interest under CA-LE?
Interim Interest is the amount of interest due for the financial year during which the surrender of the master policy has been done. Rate of interest will be 50% of last year's investment return rate (declared for that particular Master Policy).
However, the Master Policyholder can opt either of the following options at the time of surrende
 

At the time of surrender, the client will get only the "nominal part" of the fund, which means the fund value with no interest calculated for the current financial year.
The exact amount of interest due for the financial year during which surrender occurred will be calculated at the end of the financial year (as per the rule mentioned in section 19 above) and will be paid to the client.
 
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What is the procedure to revive a lapsed policy under CA-LE?
If the due premium is not received within the grace period the policy will lapse. The lapsed master policy can be revived within 2 years from the date of lapsation. For Revival of a lapsed policy, a new quotation will be generated with a new cover start date, which will be the revival date subject to acceptance of the risk. The members of the master policy will have to re-enter as new members for risk coverage.
However, the accumulation of the fund will be continued without life cover/rider and the leave-encashment claims will be settled subject to the availability of funds.

What is Additional Funding under CA-LE? How does a Master Policyholder benefit under CA-LE?
Additional Funding is absorption of surrender penalty levied by the competitor at time of exit, to join SBI Life.
SBI Life will help the Master Policyholder to make his losses good, incurred on exit from the competitor, by giving an amount equal to actual surrender penalty subject to maximum 3% of transferred fund amount including surrender penalty levied on the past service contributions received during 1st policy year. This facility is available subject to proof of surrender penalty being levied. It will be recovered in three equal annual installments at the end of each subsequent policy year from the fund.

Is the Partial Transfer of Funds allowed under CA-LE?
Yes, Partial transfer of funds is allowed from 2nd policy year onwards upon the request received from master policyholder through a notice in writing at least one month in advance. Only one Partial transfer of funds per financial year is allowed to the Trust / Master Policyholder subject to minimum of Rs.1.5 lacs and maximum of 50% of funds available in the scheme. The amount payable will be the partially transferred fund from the accumulated fund after deducting the charges

What is SBI Life - AD & TPD rider under CA-LE? Till what age this rider can be availed?
SBI Life - Group Accident Death & Permanent Disability Rider (SBI Life - AD & TPD) (UIN No.: 111B002V01), maximum age at entry should not be more than 64 yrs as on last birthday and maximum maturity age is 65.

Benefits:
On death or permanent disability due to accident the (accidental death sum assured) is payable in addition to the basic death benefit. The maximum benefit under this rider will be limited to the basic sum assured / Rs. 5 lakhs whichever is lower. The rider benefit ceases after permanent disability benefit is paid.

What are SBI LIFE - AD & TPD rider exclusions under CA-LE?
Exclusions under the SBI LIFE - AD & TPD Rider are as follows:
The Company shall not be liable to pay the rider benefits, if the disability or the death of the Life Assured shall
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be caused by intentional self injury, attempted suicide, insanity or immorality or whilst the Life Assured is under the influence of intoxicating liquor, drug or narcotic; or,
take place as a result of accident while the Life Assured is engaged in aviation or aeronautics in any capacity other than that of a fare-paying, part-paying or non-paying passenger in any air-craft which is authorized by the relevant regulations to carry such passengers and flying between established aerodromes, the Life Assured having at that time no duties on board the aircraft or requiring descent there from; or,
be caused by injuries resulting from riots, civil commotion, rebellion, war (whether war be declared or not), invasion, hunting, mountaineering, steeple chasing or racing of any kind; or,
result from the Life Assured committing any breach of law; or,
Arise from employment of the Life Assured in the armed forces or military service of any country at war (whether war be declared or not) or from being engaged in police duty in any military, naval or police organization.
 
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What is Unique Pooling Advantage under CA-LE?
Pooling of Funds is aggregating amount of all your funds (of that master policyholder) under non-unit linked group retirement benefit schemes managed by SBI Life. It is taken into account to declare a rate of return on investments, based on fund size. Higher aggregated fund size may help us declare higher returns.

What is the Grace Period available under CA-LE?
The 30 days Grace period is available for payment of life cover premium.

Is free look period available under CA-LE?

There is no free look period available for this scheme.

What are the documents required for Master Policy Issuance under CA-LE?
Master policy is issued on acceptance of:
 



Proposal Form (Signed and Stamped)
Employee data (Signed and Stamped)
Signed and stamped Actuarial Quotation.
Trust Deed with Rules of the Scheme
Cheque/DD towards Risk Premium, Annual Contribution & PSL
 
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What is the Risk Commencement Date under CA-LE?
The risk will commence immediately upto FCL from the date of acceptance of the proposal. For life cover above FCL, risk will commence on the date of fulfillment of underwriting requirements and acceptance of the same by SBI Life.
For new members to the group, risk will commence from the date of receipt of member data and the risk premium.

Are there any Administration Charges under CA-LE?
There are no Administration Charges.

Is there any Fund Management Charges under CA-LE?
There are no Fund management charges.

What are Surrender charges under CA-LE?
Surrender Charges are as follows:
 
 
Policy Year
Charges % of Surrender / Partial withdrawal of amount
Policy Year 1 Not Allowed
Policy Year 2 3%
Policy Year 3 2%
4 & 5
1%
6 onwards NIL
 

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How are claims settled under CA-LE?
Claim may arise due to Resignation / Retirement / death or disability.

Process for Claim settlement is as follows:
 

Claim intimation has to be given to SBI Life insurance co. in a given prescribed format. Claim Form is available with Group Corporate Team of SBI Life insurance co.ltd..
Submit the Claims Form with required set of documents as mentioned on the Claim Form
 


36.
SBI Life Insurance Co. Ltd reserves the right to call for any additional information and documents required to satisfy itself as to the validity of a claim.

What is the claim procedure during the Grace period under CA-LE?
If the death claim arises during the grace period then the claim would be payable subject to the payment of the due risk premium for the entire group, by the master policyholder.
 
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