What are employee savings schemes in India and why are they important?

To ensure employer-employee relationships are maintained fairly, there has to be a set of rules and provisions governing the same.


Countries typically maintain a dedicated set of legal regulations that govern this relationship to make sure both employees, as well as employers, have their rights secured.


Government saving schemes in India have been established for this very purpose. Employee benefit schemes in India work to ensure that welfare factors like financial benefits to employees are available while at the same time unfair labor practices are also curbed.

What are employee saving schemes?

Employee savings plans and schemes are typically established by governments as a way to help workers secure their financial future while they are employed.


These schemes are launched by state and central governments, public/private sector banks, and financial institutions. An example of an employee assistance program in India is the Public Provident Fund (PPF) scheme.


Employees can utilize savings generated from these schemes to fund cases of emergencies, higher education, retirement, job loss security, debt payoffs, and much more.

Why is it important to invest in saving schemes?

As an investment option, employee saving schemes are sound options for both employers as well as employees. Investing in company benefits helps bring positive returns for your company and at the same time secures your workforce’s future. Here’s how:


Benefits for employees

Safety


The security that employees can obtain from savings is the most evident advantage of saving plans. Employers who participate in savings plans can save more money by having less access to liquid cash.


It makes sure that money is securely held so that your staff can use it when they actually need it in the future.


Planning for retirement


A wise strategy for securing your later years is to build a retirement fund by recurrently contributing to a long-term savings plan.


Particularly if you start young, you can be rewarded with a sizeable amount of money that will enable you to live a comfortable and secure life.


Reduced financial stress


A major source of financial stress and strain could be a lack of money, either now or in the future. The possibility of future emergencies, necessities, etc. can be perceived as a significant barrier for an employee who has no savings.


Having a monthly saving scheme where money is segregated and stored automatically for use in future can reduce the financial stress an employee has to go through drastically.


Benefits in the long run


Compound interest systems are an added benefit of long-term financial planning. By increasing your savings each year, these programmes produce big results when they mature.


Benefits for employers

Talent retention


A company's reputation among its staff can be improved by investing in employee benefits. A corporation shows its employees that it cares about them by making investments in and offering benefits above and beyond monthly salary.


This shows that the company values the people who work for it. By maintaining staff morale and ensuring that your personnel is adequately compensated, this can aid in employee retention.


Savings on tax


By making these investments, employers can use investments made in employee savings schemes as a tax-free savings plan for their own needs. This may take the form of tax exemptions or deductions.


Your savings will vary depending on the tax system you want to use for refunds and exemptions. Employers may occasionally receive percentage returns on investments of a certain size, or they may receive exemptions from payment of interest and maturity amounts.


Competitive talent acquisition


Nowadays, prospective employees consider other factors in addition to money when looking for a new position. Employee perks offered by the company, for example, are important considerations in their decision-making.


When it comes to attracting and retaining great employees, investing in healthy savings plans provides you an advantage over rival recruiters.

What are the tax deductions saving schemes employees can claim?


National Savings Certificate

The National Savings Certificate is a safe and secure Government investment scheme that can be opened in any post office in India.


Because the NSC is a government scheme it allows tax deductions up to a maximum of INR 1.5 lakhs under Section 80C of the IT Act. Any interest earned via NSS is eligible for tax exemption and is added back to the initial investments.


Moreover, at the time of maturity investors can withdraw the full amount but because TDS is not applicable on NSC payouts, investors will have to pay the required taxes.


If investment in the NSC account is in its second year, investors can claim a tax deduction on the NSC investment of that year, as well as previous year’s interest earned.


This is because the interest earned is added to the investment and is compounded annually.



Equity-Linked Savings Scheme

The ELSS mutual fund, or Equity-Linked Saving Scheme, is an investment scheme that gives interest rates anywhere between 5% to 18%. It has a lock-in period of 3 years.


You can avail of tax deductions up to INR 1.5 lakhs on ELSS investment amounts as per the guidelines of Section 80C under the IT Act. However, the dividends earned via the ELSS have been made 10% taxable since April 1st, 2018.


Public provident fund

The Public Provident Fund, or PPF, is one of the most popular tax-free government saving schemes in India. PPF gives income tax exemptions for salaried employees because it falls under the EEE status, i.e. it is exempt, exempt, exempt.


No tax has to be paid on contributions made to the PF account, interest paid, or the amount received on maturity. The PPF has a maturity period of 15 years and its interest rates are reset every year.


Contributions made to National Pension Scheme

The National Pension Scheme or NPS is another tax-free saving scheme. allows tax deductions as per three different sections of Indian tax laws:


The contribution, up to the maximum limit of INR 1.5 lakh can be claimed for tax exemption under section 80C of the IT Act.


Under Section 80CCD (1b) one can get additional deduction up to INR 50,000.


If 10% of the basic salary of the individual is contributed by the employer in the National Pension Scheme, then the amount is not taxed.

What government schemes are available to employees through their employer?


Unemployment Insurance

Managed by the state and federal governments, unemployment schemes have been put in place to help employees who have been laid off. It is financed by a charge that some organizations are obligated to pay.


Depending on the requirements of your state, you should register with your state’s department of revenue or workforce agency to find out what you owe as unemployment insurance charges.


Employee provident fund (EPF)

Supervised by the Miscellaneous Provisions Act, the EPF falls under the social security payments wing in India. Employers must designate 12% of their employees’ salaries as mandatory employee benefits to EPF if they are governed by the EPF Act.


You can also choose to give up 24% of the rate of contribution to the EPF. Of the 12% that the employer has to pay, 3.67% is contributed towards the EPF account while 8.3% goes to pension funds.


Health insurance

Health insurance also falls under the umbrella of compulsory statutory benefits in India for employees. These policies often cover partners, children, and parents of the employee as well.


Gratuity

Employers are required to provide a gratuity payment of 15 days for every year of employment for the employee, as required by the Gratuity Act. Employers can also enjoy tax benefits worth approximately INR 1,000,000 by paying gratuities.


Gratuity payment can be given to employees in the following cases:


After working at a specific company for a minimum of five years the employee resigns.


Retirement of the employee


Death of the employee


Employee suffers disability because of prolonged illness or accident.


Employee State Insurance Scheme

One of the oldest Employee benefit scheme in India, the Employment Sate Insurance Scheme (ESI).  The ESI provides financial and medical assistance to the employees and their families.


Whenever an employee is unable to perform his duties due to sickness, employment injury, or maternity this assistance is provided.

How you can avail of maximum benefits from government saving schemes?

It is important to make sure both you and your employees get the most out of the government saving schemes available in India. Given below are some examples of how you can do the same:


If you're an employer

A tried-and-true method for maximising returns is to hire a dedicated human resources (HR) manager to efficiently handle employee benefit plans and employee welfare in general.


Having an HR manager on board gives you the power to monitor all aspects of savings plans, from determining which employees receive how much pay for overtime to maintaining legal compliance.


Try to utilise standardised contracts and templates whenever possible to prevent omitting important facts and requirements.


Employee insurance in India is a good illustration of this; since insurance is required for almost all employees, having a standard paperwork prepared in advance can help you avoid a lot of hassle when hiring.


Payroll management software makes it simple to outsource tedious administrative duties associated to savings plans, such as managing payroll.


Bringing one on has shown to be an effective strategy, especially for businesses with sizable workforces.


If you’re an employee

Ensure that you record your working hours. Employees in India are entitled to a fair share of compensation for each hour worked over the weekly limit of 48 hours under employee benefit plans, which have a clear policy on overtime.


Keep any paperwork pertaining to reimbursement, such as invoices and medical records, securely stored. While managing these documents manually might be challenging, if your firm has a system that enables you to save them digitally, it will be lot simpler.


Make sure to withdraw the savings scheme money you are entitled to by your employer or the government, depending on what is applicable, when you change employment or retire.

Finally, we have seen how there are employee benefit schemes in India that are advantageous to both companies and employees.


It has been challenging for businesses to maximise the benefits of various savings schemes since it is difficult to keep track of all the savings plans, associated paperwork, and crucial payroll information.


However, the payroll and expense management software that is currently accessible has been a blessing in this situation.


It might not be a bad idea to use one for your own business, especially when the majority of the banking industry is already reaping its advantages.

Need payroll, reimbursement and employee expense management software?