b) Group Insurance Scheme 4 il i all the employees of the undertaki is scheme, the insurer will insure 7 ae that the sum assured is payable on the death of the employee while in service. i id by the employer and wilj i ds the scheme will be paid by ’ get the — as deductible expenditure and the same will not be treated as perquisites in the hands of the employee. c) Group Gratuity Scheme The amount of gratuity payable depends on the: Y salary of the employee and ; ¥ the number of years of service completed by him Since liability keeps on increasing at completion of every year of service, it has been found necessary for the employers to create a fund so that liability in respect of these payments is met from the proceeds of the Fund. As per provisions of Gratuity Act 1972, gratuity is payable to an employee on termination of employment after he has been in continuous service for not less than five years ¥ on his superannuation or Y onhis retirement or resignation or Y on his death or disablement due to accident or disease. The gratuity scheme has to be approved by the Income Tax Commissioner under the Income Tax Act 1961, for which a trust Fund is set up for the purpose. The gratuity liability is funded by introducing a Group Gratuity scheme with the insurers. The: employer will have to Pay premium, and investment of these contributions be the responsibility of the insurer; this will relieve the employer of the problems of investments. The insurer will be making the payments to the employees as and when the various contingencies of payment arise. d) Group (Term) Insurance Scheme Croup (term) Insurance Scheme is meant to provide life insurance protection to TouPs of people. Administration of the scheme is on group basis and cost is low. rng Croup (Term) Insurance Scheme, life insurance cove allowed to all the Be upon BOUP subject to some simple insurability conditions without insisting upon any medical evider : n ‘hee. Scheme offers covers only on death and there is no maturity value at the end of the term. :Insurance Scheme ij; Group (Term) 8 at present offered under C (Ti r Ine Yea ‘ Group term assurance ti (OYRGTA), Every year on aie ipod ped ance Companies charges the premium depending upon the, eae s _ “isuibuion ofthe age gra pon the changes in size ¢ Social Security Schemes, ‘These schemes are tun by Govt of India for the b ir basis. Generally administration of this kind of schemes ed Peo in roup Companies specially by LIC. One of the popular scheme ie Ao es Bima Yojna.Feature of scheme is as follows . 1. Eligibility criteria: i) The members should be aged between 18 nearer birthday. ii) The member should normally be the head of the famil b ly or one earnin: member of the below poverty line family (BPL) or marginally above the poverty line under identified vocational group/rural landless household, years completed and 59 years 2. Nodal Agency “Nodal Agency” shall mean the Central Ministerial Department/State Government/Union Territory of India/any other institutionalized arrangement/any registered NGO appointed to administer the Scheme as per the rules. In the case of “Rural Landless Households”, the nodal agency will mean the State Government/Union Territory appointed to administer the Scheme. 3. Age Proof: a) Ration Card b) Extract from Birth Register ¢) Extract from School Certificate d) Voter's List e) Identity card issued by reputed employer/Government Department. f) Unique Identification Card (Aadhar Card) 4, Premium: The premium to be charged initially under the scheme will be Rs.200/- per annum per member for a cover of Rs,30,000/-, out of which 50% will be Subsidized from the Social Security Fund . In case of Rural Landless Household / 163 C26 Life Insurance Finance11 shall be borne by the State Ge pace group the remain; mn and/or Member 8 50% and/or State Go Premings meny smaining 50% premiut (RLH) remaining oof other occu Territory and in case : shall be borne by the Nodal Agency Union Territory | the sum assured is payable only in the event of Of death ie _, the st life assured occurring ‘within a defined period. ‘A. Whole life insurance plan B_ Term insurance plan Endowment insurance plan D_ Money back plan OF the Jeevan Jyoti Bima Yojana It i: link with the Pradhan Mantri Than ba a. Pradhan Mantri 'm insurange scheme which will Eligibility: Person with the age group of 18 ; years to aie nt ne eligible for the scheme. If the account is eee and have ba age of 50 years, the life cover would remain intact up to th fore attaining premium is paid regularly. P t0 the age of $5 yen i Who will implement this Sch eme?: The scheme wi Insuran i ioe fsunce Capra and all thet ae ee sme and tie-up with banks for this purpose. are willing +0 join te Annual Premium: Premi i ne jum payable for this scheme is Rs.330 per year i per ar i.e less How to avail the benefit of this scheme? First step is to link your Aadhar card with the bank account. After link ing Aadhar the b: card wi account, , a simple form is to be filled every y to ‘ard with bank ear and to be submitted t Spiited to the bank before Ist of June, in order t > 'o avail the benefit of this Key points of the scheme: 1. The payment of subseriby Premium will be di ers account, ill be directly auto-debited by the bank from the 2. Risk cov erage of Rs, R 3. The scheme wil 2 Lakh in case of death for an insurers who Will be offered by ae eae y Li Purpose, willing to joi ife Insurance Corporation and all other life in th © scheme and tie-up with banks for s pine; 1 is required 10 renew the olicy holder ‘The P u bolicy cach year and the prem; . auto-debited from his bank account, : a bea will noe name is 10 Be Riven in the fon along with relationship. tn case the 5. Neyo is minor, name of the guardian iy aly ee es aiven, ince is nomi" j ‘ vayemnment contribution towards this scheme will be decid Sei contribution will come from the unclaimed money [ wa led separately ea ; iblic welfare fund. pu ying idel in various he premium paid will be tax-free undor s 2. The ection 80C and also the proceeds unt will get tax-exemption u/s 10( 10D). amol 165 1026 Life Insurance FinanceGuidelines for investment of funds 16 Regulations were issued fc ime i AL (Investment) ra issued for the first time net A ifnade some amendments and released the Insurance eae a 2yrelopet vauthority (Investment (Fifth Amendment) Regulation,2013 d E 1, Life nsuranee pusiness(Regulation 4) very insurer carrying on the business of life insurance shall invest and all times Bem gested his favestment assets other than funds relating to pension and iMnuity business and all categories of unit linked business in following nerd manner ceo Bao Investment Percentage [aot pa Not less than 25% of : t securiti = i) | Government securities the fund [J Government securities or other approved Not less than 50% of ii) | securities (including (i) above) the fund Fvestment as specified in Section 27A of the | Not exceeding 50% ‘Act and other Investments as specified in ip | section 27A(2) of the Act and Schedule I to these Regulations(all taken together), subject to Exposure / Prudential Norms specified in Regulation 9: !v) | Other investments as specified under Section . 77A(2) of the Act), subject to Exposure / Not exceeding 15% Prudential Norms specified in Regulation 9: vy) Investment in housing and infrastructure by way of subscription or purchase of: Total Investments Investment in Housing inhousing and a) Bonds / debentures of HUDCO and infrastructure (i.e.) National Housing Bank investment in b) Bonds / debentures of housing finance categories(!),(!!),(1!!0, companies (HFCs) either duly accredited by | and(!v) above taken National Housing Bank, for house building | together shall not be activities, or duly guaranteed by less than 15%of the Government or carrying current rating of fund under not lees than ‘AA’ by a credit rating agency | Regulation 3(a) Lo registered under SEBI (Credit Rating IC 26 Life Insurance Finance aAgencies) Regulations, 1999 ©) Asset backed securities with underlying housing loans, satisfying the norms specified in the guidelines issued under these regulations. | b)Investment in infrastructure: (Explanation: Subscription or purchase of bonds / debentures, equity and asset backed securities with underlying infrastructure assets would qualify for the purpose of this requirement. “Infrastructure facility’ shall have the meaning as given in clause (h) of Regulation 2 of Insurance Regulatory and Development Authority (Registration of Indian Insurance Companies) Amendment Regulations, 2008) as amended from time to time. Note : investments made under category(!) and(!!) above may be considered as investment in housing and infrastructure provided the Tespective government issues such a security specifically to meet the needs of any of the sectors specified as infrastructure facilities 2. Pension and general annuity business (Regulation 5) Every insurer shall invest and at all times keep invested funds belonging to pension and general annuity business in the following manner No. Type of investment Percentage i) _| Government securities Not less than 20% of the fund .) | Government securities or other Not less than 40% of the fund +) | approved securities (including (i)) above Balance has to be invested in approved investments as specified in Schedule I _| Not exceeding 60% of the subject to exposure / prudential norms | fund specified in Regulation 5 iii) 2 IC 26 Life Insurance Financea) Regulation 6: Manner of Investments applicable to Unit-Lj ke Insurance Business: inked Every insurer carrying on Unit-Linked Insurance Business shalt ‘inve and at all times keep invested his segregated funds(s) urgct Regulation 3(c) (with underlying securities at custodian level) a Unit-Linked Insurance Business as per pattern of investment offered to and approved by the policyholders where the unity ot linked to categories of assets which are both marketable and eaallg realisable. However investment in Approved Investment shall not re more than 75% of such funds in each such segregated funds. As stated earlier, every policyholder pu Regulation 9 containing a Note for the purpose of Regulations 4 to 6 (discussed earlier) i, All investments in assets or instruments, which are capable being rated as per market practice, shall be made on the basis of credit rating of such assets or instruments. No approved investments shall be made in instruments, if such instruments are capable of being rated, but are not rated. ii. The rating should be done by a credit rating agency registered under SEBI (Credit Rating Agencies) Regulations 1999. Corporate bonds or debentures rated not less than AA or its equivalent and P1 or equivalent ratings for short term bonds, debentures, certificate of deposit and commercial paper, a credit rating agency registered under SEBI (Credit Rating Agencies) Regulations 1999 would be considered as Approved Investments. iv. The Rating of a debt instrument issued by All India Financial Institutions recognised as such by RBI shall be of AA or equivalent rating. In case investments of grade are not available to meet the requirements of the investing insurance company, and the Investment Committee of the investing insurance company is fully satisfied about the same, then for the reasons to be recorded in the Investment Committee’s Minutes, the Investment Committee may approve investments in instruments carrying current rating of not less. than ‘A+’ or equivalent as rated by a credit rating agency registered under SEBI (Credit am IC 26 Life Insurance FinanceRating Agencies) Regulations 19 . Approved Investments, 99, would be considered as Approved Investments under regutati og ions 4, 5, 4 are downgraded below the minimum rating Peebon which automatically reclassified under ‘Other investme ! should be for the purpose of pattern of investment. nts’ category vi. Investment in equity shares listed on a should be made in actively traded and liquid i 4 inst fi equity shares other than those defined as thinly, viaded ae ver SEBI Regulations and guidelines governin; i SEBI from time to time. 'g mutual funds issued by registered stock exchange vii. (a) Not less than 75% of investment in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) in the case of life insurer and Not less than 65% of investment in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) in case of general insurer - shall be in sovereign debt, AAA or equivalent rating for long term and sovereign debt, P1+ or equivalent rating for short term instruments. This shall apply to at segregated funds level in case of unit-linked-business. (b) Not more than 5% of funds under Regulation 3 (a) in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) in the case of life insurer and Not more than 8% of investment in debt instruments (including Central Government Securities, State Government Securities or Other Approved Securities) in case of general insurer - shall have a rating of A or below or equivalent rating for long term. (c) No investment can be made in other instruments out of funds under Regulation 3(b). (d) Investments in Debt instruments rated AA - (AA minus) or below shall part of Other Investments. IC 26 Life Insurance Finance ms la aviii. Notwithstanding above, it is emphasised that r: replace appropriate risk analysis and management Should Not the insurer. The insurer should conduct nae he part of commensurate with the complexity of thi Analysi P : le s materiality of other holding or could also retracts and investment. from such Regulation on Exposure / Prudential Norms Regulation 9: Exposure / Prudential Norms (A\ Regulation 5 in IRDAI (investment Regulations 2000) “mendent of Without prejudice to anything contained in Sections 27A and 278 of Insurance Act, every insurer shall limit his investments based oy e following exposure norms: n the A) Exposure Norms for investment assets of a) All funds of Life Insurance business and One Year Renewable Pure Group Term Insurance business (OYRGTA) and non-unit reserves of all categories of Unit Linked life insurance business, b) All funds of Pension, Annuity and Group Business [as defined under Regulation 2(d) of IRDAI (Actuarial Report and Abstract) Regulations 2000}. c) The unit reserves portion of all categories of Unit linked Funds, as per Regulation 6, Life, Pension, Annuity, and Group business and each segregated fund within Unit Liked Insurance, business (except for promoter group exposure) 2. For both Approved Investments as per the Act, Schedule 1 and Schedule 11 of these Regulations and Other Investments as permitted under Sec. 27A(2) and 27B(3) of the act shall be as under. B) The maximum exposure limit for a single investee company (equity, debt, and other investments taken together) from all investment assets under point (A.1.a, A.1.b, A.1.c all taken together), (A.2) and (A.3) mentioned above, shall not exceed the lower of the following: a IC 26 Life Insurance Finance |n amount of 10% of the investment We Ggyct), Regulation 2(e)(2) asset: An aggregate of amount calculated under " following table. $ aS under Regulation 2 Point (a) and (b) of the able 5: An aggregate of amount calculated under Point a and b life insurer / amount under (A.2) and (A.3) in the case of General insurer/ — Re- insurer- whichever is tower b. Investment in Debt/ | 10%* of the Loans and | Paid-up Share lower Exposure to Investments made in companies belonging to Promoter Group shall be made as per point 7 under notes to Regulation 9 ‘ent | Limit for | Limit for the | Limit wen Investee entire Group of industry tor ee vl Company Investee Cos Investee Co belon: " 10% . of | Not more than | Investment by ae Trvestment | outstanding | 15% ofthe | insurer in any in Equity, | Equity Shares | amount under | industrial sector preference (face Value) | point A.1(a) or] should not exceed shares, Or A.1.(b) or A.1.(c) | 15% of the amt. Convertible 10% of the | or A.2 or A.3 or | under point A.1(a) or Debenture | amount under | 15% of | A.1.(b) or A.1.(c) or point A.1(a), | investment A.2 or A.3 or 15% of A.1.(b), Assets in all | investment Assets, A.1.(c) above | companies whichever is lower. considered belonging to the separately in | group, Note: Industrial the case of |whichever is) Sector shall be classified in the lines of National Industrial Classification (Alt Economic Activities) -2008 [NIC] for all sectors, except infrastructure sector, Exposure shall be calculated at Division level from A to R. For Financial and Insurance Activities sector exposure shall be at Section level. any other | capital, free Exposure , to Permitted | reserves Infrastructure’ IC 26 Life Insurance Finance 27investments are) subject to Note 1, 2 3 and 4 mentioneg below Investments (excluding as per Act/ | revaluation Regulation | reserve) and other than | Debentures / item ‘a’ | Bonds of the above ‘Investee’ company Or, 10% amount under point Ad (a), Ad. (bd), A-t.(C) above considered separately in the case of life insurers. An amount under —(A.2) and (A.3) in the case of General insurer/ — Re- insurer- whichever is lower Note: In the case of insurers having investment assets within the meaning of Regulations 2 (g)(1) and Regulations 2 (g) (2) of the under mentioned size, the (*) marked limit in the above table for investment in equity, preference share, convertible debentures, debt, loans or any other pevaltted investment under the Act or Regulations, shall be substituted as under. 278 IC 26 Life Insurance Finance7; Limit for ‘Investee’ Company le i = Equity 7 Debt ‘ores or | 15% of Outstanding 15% of paid uj i RS 750000 cr equity shares (face | free renee more value) revaluation reserves)&Debentures /bonds 9000 crores put | 12% of Outstanding 12% of paid up capital, ie ‘nan RS- 250000- | equity shares (face | free reserves (excl. —estment Assets es value) revaluation crore reserves) &Debentures {bonds Tess than Rs. 50000- | 10% of Outstanding 10% of paid up capital, crores equity shares (face | free reserves (excl. value) revaluation reserves)&Debentures /bonds Note: 1. Industry sector norms shall not apply for investments made in Infrastructure facility sector as defined under Regulation 2(h) of IRDAI (Registration of Indian Insurance Companies) Regulations 2000 as amended from time to time. NIC classification shall not apply to investment made in Infrastructure Facility. 2. Investment in Infrastructure Debt Fund (IDF), backed by Central Government as approved by the Authority on a case to basis, shall be reckoned for investments in Infrastructure. 3. Exposure to a public limited ‘Infrastructure Investee Company’ will be 20% of outstanding equity shares (face value) in case of equity (or) 20% equity plus free reserves (excluding revaluation reserves) plus debentures/ bonds taken together, in the case of debt (or) amount under Regulation 9(b) (i), - whichever is lower. The 20% mentioned above, can be further increased by additional 5%, in case of debt instruments alone, with prior approval of Board of Directors. The outstanding tenure of debt instruments, beyond the exposure prescribed in the above table, in an “Infrastructure IC 26 Life Insurance Finance ae ma —280 . An insurer can, at tl any’, should not be less than 5 years at the ty, ere nica sr equity Investment, dividend track recy a Sec. 27A(1)(i) and 278(1)(h) of the eee Act, in the ta primary issuance of a wholly owned subsidiary of a corporate, Psy ding company. However all investments Made hall apply to the hol ; inan sinrastructure Investee Company’ shall be subject to Sroup romoter group exposure norms. pl 8 he time of investing, subject to group / promote, sure norms, invest a maximum of 20% of the Project con ce tecided by a competent body) of a Public limited Speer gaged in ‘Infrastructure sector, or amount Purpose Vehicle (SPV) engage 1 under Regulation 9(b)(i), whichever is lower, as a part of Approveg Investments provided: a) Such investment is in debt, b) The parent company guarantees the entire debt extended ang the interest payment of SPV, The principal or interest, if in default and if not Paid within 90days of the due date, such debt shall be classified under other investments, ¢ The latest instrument of the parent company (ies) has (have) rating of less than AA, d Such guarantee of the parent company (ies) should not exceed 20% of the Net worth of the parent company (ies) including the existing guarantees, if any, given, e) f) Net worth of the parent company (ies), if unlisted, shall not be less than Rs. 500 cr or where the parent company (ies) is listed ‘on stock exchanges having nationwide terminals; the net worth shall not be less than Rs.250-crores. Investment committee should continuously evaluate the risk of such investment and take necessary corrective actions where the parent company (ies) is floating more than one SPV. . Investment in securitised assets [Mortgage Backed Securities (MBS) / Asset Backed Securities (ABS) / Security Receipts (SR)]} both under approved and other investment category shall not exceed 10% of IC 26 Life Insurance Finance omestment assets in case of life Insurance Companies and not the an 5% of Investment assets in case of Non-life ins, Companies, less ps/ ABS with underlying housing or infrastructure assets, if eal raded below AAA or equivalent Assets, shall be reclassified as other Investments. tment in immovable property covered under Section 27A( 1)(n) 6 We Act, shall not exceed, at the time of investment, 5% of the of estment Assets in the case of general insurer and 5% of the vestment Assets of the funds relating to life funds, pension, anuity and group funds in the case of life insurer. subject to Exposure limits in the Table above, an insurer shall not : have investments of more than 5% in aggregate of its total Investment in all companies belonging to the promoters’ group. Investment in all companies belonging to the promoters’ group shall not be made by way of private placement (equity) or in unlisted instruments (equity, debt certificate of deposits, and fixed deposits (without prejudice to Section 27A (9) and Section 27B (10) of the Insurance Act held in a Scheduled Commercial bank) except for companies formed by insurers under Sec Section 27A (4) or Section 278 (5) of the Act. 8, The exposure limit for financial and insurance activities shall stand at 25% of investment assets for all insurers. 9. Investment in Fixed Deposits and certificate Deposits of a scheduled bank shall be made in terms of the provisions Section 27A (9) and Section 27B (10) of the Insurance Act. Such investments would not be deemed as exposure of financial and insurance activities. IC 26 Life Insurance Finance fe a_i4. Companies Act, 2013 and financial statements of under Section 128 of the Companies Act 2013, “Evel prepare and keep at its registered office books of accot relevant books and papers and financial statement for evé year which give a true and fair view of the state of the affai Yompany, including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books shall be kept on accrual basis and according to the double entry system of accounting. Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address of that other place: Provided further that the company may keep such books of account or other relevant papers in electronic mode in such manner as may be prescribed. .....-” 2. Provisions of Section 129 Section 129 of the Act 2013 states that (1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under Section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule Ill: Provided that the items contained in such financial statements shall be in accordance with the accounting standards. Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company: Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose— IC 26 Life insurance Finance cedinsurance company, any matters which are not disclosed by the Insurance Act, 1938, or the velopment Authority Act, 1999; (a) In the case of an required to be Insurance Regulatory and De\ itters which are not b) In the case of a banking company, any matter 7 required to be disclosed by the Banking Regulation Act, 1949; i tion or supply of (c) In the case of a company engaged in the generat u - electricity, any matters which are not required to be disclosed by the Electricity Act, 2003; (d) In the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law. (2) At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year. (3) Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under Sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under Sub-section (2): Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed: Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed Explanation: for the purposes of this sub-section, the word “subsidiary” shall include associate company and joint venture. 394 IC 26 Life Insurance FinancePP 3. provisions of Section 210 companies Act 2013 and financial statements of companies: Section 710 of the Companies Act, 1956 requiring the preparation and resentation of the Board of Directors of the company shall lay at every annual general meeting of the company: i, A Balance Sheet as at the end of the period fi. A Profit and Loss Account for the period In case of a company not carrying on business for profit, an income and expenditure account shall be laid before the company at its general meeting instead of profit and loss account. IC 26 Life Insurance Financev The noe financial assets or financial liabilities Y The useful lives of, or expected pattern of consumption of, th economic benefits in depreciable assets eee v EEE Implementation of new Accounting Standard [As more and Indian firms are diversified into international busi . 7 7 jal businessand to get subsidy from various international organisation, Indian govt has commited at yarious international forum, such as WTO, that it will adopt Intemational GAAP and will converged towards International Financial Reporting Sysstem (IFRS). As a first steps towards Intemational Accounting, Govt. has taken steps to modify Accounting Standard and asked ICAI to make necessary changes into Existing Standard and come out with new Accounting Standard. For formulation of Accounting Standard Govt has constituted National Advisory Committee on ‘Accounting Standard (NACAS. Once Accounting Standard are formulated by ‘Accounting Standard Board of ICALStandards are forwarded to NACAS for its vetting. NACAS after carefully studying Standards recommends these Standard to Ministry of Corporate Affairs for notification. As on date (31.05.2015), Ministry of Corporate Affairs has notified 35 Indian Accounting Standards (abbreviated as India AS). The Ind AS are named and numbered in the same way as the corresponding IFRS This shall be applied to the companies of financial year 2015-16 voluntarily and from 2016-17 on a mandatory basis. Based on the international consensus, the regulators will separately notify the date of implementation of AS Ind for the banks, insurance companies etc. Standards for the computation of Tax would be notified separately.!"! . Now India will have two sets of accounting standards viz. existing accounting standards under Companies (Accounting Standard) Rules, 2006 and IFRS converged Indian Accounting Standards(Ind AS). OBJECTIVE The basic objective of Accounting Standard in th treatment of several accounting aspects and to bring about standardization in presentation. They intent to harmonize the diverse accounting policies followed in the preparation and presentation of financial statements by different reporting enterprises so as to facilitate intra-firm and inter-firm comparison. is is to remove variations in the List of Indian Accounting Standards(IND_ ‘Ass as on date (31.05.2015) IC 26 Life Insurance Finance 489Ind AS 101 First-time Adoption of Indian Accounting Standards * Ind AS 102 Share based Payment * Ind AS 103 Business Combinations * Ind AS 105 Non current Assets Held for Sale and Discontinued Operations * Ind AS 106 Exploration for and Evaluation of Mineral Resources * Ind AS 107 Financial Instruments: Disclosures * Ind AS 108 Operating Segments * Ind AS 109 Financial Instruments * Ind AS 110 Consolidated Financial Statements * Ind AS 111 Joint Arrangements * Ind AS I Presentation of Financial Statements * Ind AS 2 Inventories * Ind AS 7 Statement of Cash Flows * Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors * Ind AS 10 Events after the Reporting Period * Ind AS 11 Construction Contracts * Ind AS 12 Income Taxes * Ind AS 16 Property, Plant and Equipment * Ind AS 17 Leases * Ind AS 19 Employee Benefits * Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance * Ind AS 21 The Effects of Changes in Foreign Exchange Rates * Ind AS 23 Borrowing Costs * Ind AS 24 Related Party Disclosures * Ind AS 27 Consolidated and Separate Financial Statements * Ind AS 28 Investments in Associates * Ind AS 32 Financial Liability and Equity * Ind AS 33 Earnings per Share * Ind AS 34 Interim Financial Reporting * Ind AS 36 Impairment of Assets * Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets * Ind AS 38 Intangible Assets * Ind AS 40 Investment Property * ind as 41 Agriculture Once new Accounting Standards are notified following Accounting Standard will be applicable on Insurance Companies. 490 IC 26 Life Insurance Finance~- — IND AS 1 Presentation of Financial Statement IND AS 7 Statement of Cash Flows IND AS 8 Accounting Policies, Changes in Accounting Estimates &Errors IND AS 10 Events oocurnng after the reporting period IND AS 16 Property, Plant & Equipment IND AS 19 Employees Benefits IND AS 24 Related Party Disclosures IND AS 37 Provisions.Contingent Liabilities and Contingent Ase IND AS107 Operating Segmencs AC 26 Life Insurance Finance darived Price Option and Book Bullding Process oF through OFFER FoR ¥ Five SALES (OFS) en FPO method of offering shares, companies al eauily ot bonds to auth Tine price option or book ied process oeraugh OF, In a fixed price option, rst ieee : vie Brice, a me an ing cess, a specified price band is determine ter, inal issue price i Aeeidd on the bass of bids received at various level within te rice band “OFS Companies are issuing Shares through Auction wher earns ae ing iininnom bid price and investors hs 1 bid on or above bi Dries. Generally OFS routes are adopted by PSU Issuers. To encourage Retail participation Issuers are giving 5 to 10% discounts to retail investors. SHT NUS Issue ecaae predetermined price which are normally lower than market price, Sometimes Issuers are offering Bonus shares to its shareholders out of Reserve and Surplus.in this ease there is no cash inflow for Issuers, Sometimes Companies are issuing Bonus Debenture in place of Bonus Shares. Recently NTPC has issued Bonus Debenturgy rs Y Insurance companies’ participation Al insurance companies are allowed to participate in the primary market, Over the last few decades, LIC has been an active player in the primary market and has Participated in many IPOs and FPOs and OFS. Y Share allotment After the ‘issue closing date’, the allotment of shares subscription money is refunded, In case of OFS shi Subscription, hence it reduces is finalised, and the over- d ‘ares are allotted on the date of time between application and allotment, Y Trading of shares Bombay Stock Exchange and the National Stoct Stock exchanges in India, After listing, buying and w through the stock exchange, This is known as th b) Secondary Market All insurance, companies including LIC ate active participants in the secondary market IC 26 Life Insurance Finance[fest Yourself 1 refers to the itutis See EEE cay securities. substitution of paper-form securities by book- 1. Rematerialisation Il. Materialization JIL Dematerialization 1V. Prematerialisation ii) Depositories: Shares / Bonds can be held in demat form with the authorised depositories. SEBI has authorised two depositories that can hold securities in demat form for demat account holders. These are: Y National Securities Depository Ltd. (NSDL) and Y Central Securities Depository Ltd. (CSDL) Derivatives instrument that (1) has one or more underlyings and unts, (2) has an initial net investment smaller than ther instruments with a similar response to the mits net settlement or de facto net settlement. The underlying of a derivative is an asset, basket of assets, index, or another instrument, such that the value of the derivative depends on the value of that underlying. The notional amount is the quantity of the underling to which the Contract applies. The following are examples of underlyings and notional amounts: ‘A derivative is a financial one or more notional amot would be required for ot underlying, and (3) requires or pe Examples of Underlyings and Notional Amounts Derivative Underlying Notional Stock option Stock (price) Number of shares Currency forward Foreign currency (exchange rate) Amount of currency Commodity future Commodity (price) Number of commodity units Interest rate swap Interest rate index Dollar amount Credit default swap Credit instrument (credit event) Dollar . Common derivatives include: Option — The right, not the obligation, to buy (call option) or sell (put option) an asset at a specified price ‘during a specified period of time. Forward contract — a contract that specifies the price and quantity of an asset to be delivered in the future. Future contract — a standardized forward contract which is traded on an organized exchange. Interest rate swap — an agreement under which two counterparties agree to ‘exchange one type of interest rate cash flow for another. In a typical arrangement, one party periodically will pay a fixed IC 26 Life Insurance Finance 539 a2.9 Derivatives A derivative is a financial jn sat fh a underlying’ and one oF more motional aman al a1) has ene co ware smaller than would be required for other instruments with a cinihes repens the underlying, and (3) requires or permite net settlement vy te Len ne settlement, The underlying of a derivative in an asset, basket of wacte, dirt on another instrument, such that the value of the derivative de ope ei ms th wen that underiying, The notional amount is the quantity ofthe caderin 1h ahron te contract applies. The following are examples of underlyingy ond, nefiorad amounts: Exhibit 2.9.1: Examples of Underlyings. and mitonel Aoonoes Derivative Underlying Notional Stock option Stock (price) Number of soocs Currency forward Foreign currency (exchange ratey Arment of curonay Commodity future Commodity (price) Number of commodity units Interest rate swap Interest rate index Dollar amount Credit default swap Credit inetrument (credit event) Dollar amount De facto settlement is achieved if there is a mechanism that facilitates net settlement (e.g. exchange, assignment) or if 1 asset is readily convertible to cash (e.g, publicly traded securitics), 9 thet exposure at settlement is limited to the value of the derivative. For example, wa option to buy 100 shares of a non-listed stock with no net settlement stifles the first two criteria (it has an underlying—the stock—and a rational amount 100 shares—and the net investment is smaller than the price of 100 shares, brs # requires delivery of a non liquid underlying and is therefore not commidered 2 derivative. Common derivatives include: Option — The right, not the obligation, to buy (call option) or sell (put option) an asset at 2 specified price during 2 specified period of time. Forward contract ~ a contract that specifies the price and quantity of an asset to be delivered in the future. Future contract ~ a standaxdized forward contract which is traded on an organized exchange. Interest rate swap ~ an agreement under which two counterparties agree to exchange one type of interest rate cash flow for another. In a typical arrangement. one party periodically will pay a fixed amount of interest, in exchange for which that party will receive variable payments computed using a published index. Credit default swap (CDS) - an agreement under which the protection buyer of the CDS makes a series of payments (CDS fee or spread) to the protection seller and, in exchange, receives a pay 2.3 Wholesale Debt MARKET Generally big financial Institution issues Corporate Bonds which are called NCD to large investors such as Insurance companies, Mutual Funds and Banks to meet their long term requirements. These Bonds are rated by rating Agencies such as Crisil, CARE, ICRA Etc. Normally these kind of Bonds are issued on Private placement basis. These kind of Bonds are issued through intermediaries which are called arrangers. Banks and some merchant bankers act as arrangers. These bonds are in the denomination of Rs. Ten Lacs or one Crore. Generally these 1C 26 Life Insurance Finance ad Peds, However to save issuer and investor ¢ PUT and CALL option are given to investors and issuers, In case of PUT option investors are given ce to redeem Bond before the term of Bonds at predeterm! ined date. For rate ae issier are issuing Ronds for 5 years with a PUT option of 2 yeahs If) Ba 1 ‘April 2015. Here in normal course Bonds will be redeemed on 1" Ap . kinds of Bonds are fixed Tenure Bon form sharp variation from interest ral ; a find that market rate is more than 10%p.a, However on 1% April 2017 investors find that mar none in she can exercise put option and redeem hi 4 some other investment. Similarly issuers issue Bond for 5 ~ with 2 years CALL option @10%p.a... Here the choice is given to issuers and issuers at the end 2 years find that interest rate is less than 10% then he can an Bonds and return the money to investors. Generally to exercise PUT or CA option 15 \| day's notice are given by respective parties i.e. in case of PUT option by investor | and in ease of CALL option by issuers. Generally these Bonds are listed on | recognized Stock Exchange so that there should be sufficient liquidity for | investors. | 2.4 Retail Debt Market Sometimes to meet its requirement Issuers such as Muthoot finance, Religare, Shriram transport issues Bonds to small investors. Issue price per Bonds Is Rs.1000.These Bonds are issued for fixed tenure and carry attractive rate of interest. These Bonds are issued through public issue and prospectus is filed with SEBI setting out the term and condition of issue. Generally these Bonds are rated by Credit rating Agencies such as Crisil, CARE, ICRA Etc. Interest rates are fixed on the basis of rating and AAA rating is the highest rating which shows that issuer is financially sound and will be able to service his debt regularly and there will not be any difficulty to redeem Bond on stipulated Date. In other word there is lowest risk hence it carry lesser rate of interest. D is the lowest rating and carryhighest risk and carry higher rate of interest. To provide liquidity to its investors Bonds are listed on recognized Stock Exchanges such as BSE and NSE. 2.5 G Sec Central govt and State govts to fulfil its requirements issues dated securities which are called Govt. Securities or in short it is called G Sec. Since these securities are issued by Govt., hence it carries lowest risk and carry lesser rate of interest comparing Corporate Bonds Sec are issued for 5 years to 25 years. Interest is paid half yearly. Generally these securities are picked up by Banks to fulfil their SLR requirement. These securities are traded through Clearing Corporation of India Ltd. Since these securities carry lesser rate of interest, retail participation by small investors are negligible. i 542 IC 26 Life Insurance Finance EE EEE EEE EEE EEE Sey PEPE eee aa2.6 External Commercial Borrowing Now {0 augment Foreign Exchange Reserve und to mect forcign exchange requirement for capital expenditure and revenue expenditure RBI has allowed some companies like Oil Companies ete to ais money from abroad in Dollar and Pound in the form of Loan, This is called [ ternal ‘Commercial Borrowing These are generally dated loan for 3 to 5 years, To avoid fluctuation in Dollars and Pound and interest also Companies entered into agreement with bankers for hedging. These types of deals are called swap deals, 2.6 Money Market Insurance companies collect premium at the branch level and, after meeting all expenses, transfer surplus funds to their head office for inyestment. Insurance companies cannot immediately invest their surplus funds into stock markets or lend it to companies / industries. Hence, in the short term, they invest their money in money market instruments, Money market securities are instruments with maturity of not more than one year. Some of these instruments include: a) Certificate of deposit issued by companies b) Commercial papers issued by companies ©) Repo and reverse repo by RBI d) Treasury bills by RBI e) Call, notice money through RBI * Collateralised borrowing and lending obligation (CBLO) 8) Fixed deposits IC 26 Life Insurance Finance 543 eeSeah eae eee aes ene ee = a ———aEoEOEOee——e—exeEe===eeeeeeeeeeeeeeeeeeeeeee +S eee TE Sy WORSE Or i — RE Diagram 4: Money Market Securities + CDs issued by companies + CPs issued by companies | + Repo and reverse repo by reasury bills by RBI Generally, insurance companies put their immediate money in this account. Its maturity can be as short as one day. This is like call and notice money. Presently, RBI does not permit insurance companies to participate in call and notice money directlyflowever Insurance and investors other than Banks and invest its surplus fund for a day or two through CBLO. After taking permission from CCIL. CCIL is platform where insurance and other investors can park there surplus fund where interest rates are determined online and there is no human intervention is possible, 2.7 Insurance Market a) Pre-liberalisation insurance market Insurance provides risk cover to an individual against uncertainties in life like untimely death. Most of the life insurance plans sold by the LIC during the pre- liberalisation era came with a savings component. These plans are known as participating plans (endowment plans or money back plans). In these plans, the premium after deducting expenses was invested by LIC on behalf of the insured. The returns earned from these investments were shared with the contributing policyholders in the form of bonuses. 544 IC 26 Life Insurance Finance ——~~; 4, Rate of deduction of tax According to Section 192, the employer is required 7 ‘deduct tax at source on the amount payable at the average rate of income a isis to be computed on the Basis of rates in force for the financial year in which payment is made, For Financial year 2015 - 16 (AY 2016-17) the same is as follows Individual only Resident inaivi Resident Indians up to | Reedent individual 60 years of age Be of eight _years or above Where total | income does not Nil xt © | exceed Rs.2,50,000/- Where the total income i _. | exceeds Rs.2,50,000/- | 10% of the amt in ut | gut does exceed excess of Rs. 2,50,000/- Rs.500000/- ‘Where the total income | Rs.25000/- + 20% of | exceeds Rs.500000/- | the total amount by | 20% of the amt in Gi) | putdoes not exceed | which total income _| excess of Rs.500,000/. Rs.10,00,000/- exceeds Rs.500000/- Where the total income | Rs.1,25,000 + 30% of, aoe ae ‘i exceeds Rs.10,00,000/- | the amount by which S004 Me amount by ©) | putdoes not exceed | total income exceeds | WED Rs.1,00,00,000/- Rs.10,00,000/- meioon Ae. Rs. 28,25,000 + 30% of | Rs. 28,00,000-+ 30% of : the amount by which | the amount by which Where the fotalincome | tot income exceeds | total income exceeds Oo) Rs.100,00,000/-, Rs.100,00,000/-, Rs.1,00,00,000/- Surcharge 12% of Surcharge 12% of Income Tax Income Tax Note For senior citizens of more than 60 years but less than 80 years of age, the threshold limit is Rs.3,00,000/- In addition to the above, ‘Education cess @2% and secondary and Higher Education cess @1% on income tax shall be chargeable. - IC 26 Life Insurance Finance4, Explain the method of calculation of salary for the purpose of tax. deduction at source. [Learning outcome dJ In this learning outcome, we will study the calculation of salary income. Every employer has to deduct tax from salaries of the employee (Section 192 of Income ‘Tax Act 1961), so here we will see how to calculate salary income, so that proper tax may be deducted. , Following is a proforma of the computation of taxable income for individuals drawing salaried income: ‘Amounts | Discussed in para Salary remuneration XX] 4 ‘Add: valuation of taxable non-monetary Xx 142 perquisites Total salary income Income from other sources like house a1 property , capital income Total Income Less: Section 10 deductions a3 Net income Less: Deductions eligible w/s 80 C to 80U 44 Taxable income Find out Income Tax on net income Rebate u/s 87A Income Tax after rebate ‘Add : Surcharge (if applicable) Find out the total tax Add: Education cess Add: Secondary & Higher education cess Find out the total tax Deduct: Rebate u/s 89, 90, 90A or 91 Tax Liability Add: Interest / penalty etc. Less: Prepaid taxes 58558) 8B) 5) 5] 22 as)ns) asa esas) elas Tax Payable IC 26 Life Insurance Finance %8red pertaining to deduction of tax in accordance with the ion 203 Inall quarterly statements submitted in accordance with the provisions of sub section (3) of section 200 Y Inall retums filed pertaining to deduction of tax at source in accordance with the provisions of Section 206. Y Inall other documents pertaining to such transactions a8 ™Y be prescribed in the interest of revenue. 3. Quoting of PAN by employer / deductor With effect from 16.2001, the deductor of tax at source is required as per section 139A (SB).to quote the PAN of the person from whose income TDS has been deducted in: Y Statement furnished ws 192(2C) (statement of particulars salary) Certificate furnished ws 203 (TDS Certificate) ‘Annual return of TDS prepared and delivered ws 206. _ Quarterly statements submitted in accordance with the provisions of sub section (3) of section 200 of profit in lieu of NSN 5.2 Permanent account number (PAN) Under section 139 A of the Act, every person if his total income or the total income of any person in respect of which he is assessable under the Act during any previous year exceeded the amount which is not chargeable to tax, and any person carrying on business or profession whose total sales, turnover or gross receipts are or is likely to exceed Rs. 5,00,000/- in any previous year and who has not been allotted a permanent account number (PAN), shall apply to the Assessing Officer for the allotment of Permanent Account Number. The PAN should be quoted in all challans, returns, correspondence and staining to income tax. Now if the tax is deposited without PAN, its documents pel be taken to obtain the PAN, and credit will not be given, so due care should mention it in all the documents related to Income Tax. Please note : PAN is a ten digit alphanumeric number, which contains 6 alphabets and four numerical. Fourth alphabet shows the status of PAN holder. 592 IC 26 Life Insurance Financerou Cetra PS principal compliance of with___»— and, owes a reponsibilly to act ‘A. Honesty, trust, truthfulness B Deception, fraud, dishonesty C Honesty, deception, trust D_ Inconsistency, fairness, equality. 54 Politically Exposed Person ‘The recent activity in money laundering in India is through political parties, s and the shares market. It is investigated by the Enforcement ian Income Tax Department. According to Government of 80 billion (US$39 billion) about 1300 securities scam cases. corporate companies Directorate and Indi India, out of the total tax arrears of 241 billion (US$21 billion) pertains to ‘money laundering and s IC 26 Life Insurance Finance atb) Group Insurance Scheme insurer will insure all the employees of th Under this scheme, the insurer will insure al 1 undertakin with the condition that the sum assured is payable on the death of the employes while in service. Premiums towards the scheme will be paid by the employer and will Bet the benefit of tax as deductible expenditure and the same will not be treated as perquisites in the hands of the employee. ©) Group Gratuity Scheme The amount of gratuity payable depends on the: ¥ salary of the employee and Y the number of years of service completed by him Since liability keeps on increasing at completion of every year of service, it has been found necessary forthe employers to create a fund so that liability in respec of these payments is met from the proceeds of the Fund. As per provisions of Gratuity Act 1972, gratuity is payable to an employee on termination of employment after he has been in continuous service for not love than five years Y onhis superannuation or ¥ on his retirement or resignation or Y omhis death or disablement due to accident or disease. The gratuity scheme has to be approved by the Income Tax Commissioner under the Income Tax Act 1961, for which a trust Fund is set up for the purpose. The gratuity liability is funded by introducing a Group Gratuity scheme with the insurers. The employer will have to pay premium, and investment of these contributions will be the responsibility of the insurer; this will relieve the employer of the Problems of investments. The insurer will be making the payments to the employees as and when the various contingencies of payment arise. 4) Group (Term) Insurance Scheme Group (term) Insurance Scheme is meant to provide life insurance protection to groups of people. Administration of the scheme is on group basis and cost is low. Under Group (Term) Insurance Scheme, life insurance cover is allowed to all the members of a group subject to some simple insurability conditions without insisting upon any medical evidence. Scheme offers covers only on death and there is no maturity value at the end of the term. = IC 26 Life Insurance Financefego > 162496. = » arp osteld) med “2726 267 |/ 274 tr 28! 3 40395 fg BH SiS BD (Eurorih’ fers)