VIJAYSETU

UPSC EPFO
BRIDGE TO VICTORY

For APFC and EO/AO Examination

Industrial Relation
Labour laws
Social Security
Insurance
Accounting
Auditing

e-Book
Prepared By
VIJAYSETU Team

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 TABLE OF CONTENTS
INDUSTRIAL RELATION AND LABOUR LAWS (5-131)
1. Advent of Industry & the beginning of Industrial Relation

2. Introduction to Industrial relations

❖ Objectives of Industrial relations 3600

❖ Parties in Industrial relations
❖ Factors Affecting Industrial Relations
❖ Role of International Labour Organization

3. Approaches to study Industrial relations

❖ Unitary approach
❖ Pluralist approach
❖ Gandhian approach
❖ Marxist approach
❖ Systems approach
❖ Giri approach
❖ Flanders – the Oxford Approach
❖ Margerison – the Industrial Sociology Approach
❖ Henry Sanders – the Action Theory Approach
❖ Human Relations Approach

4. Evolution of Labour Laws

❖ Phase I- Prior to the World War I

▪ Contribution of Narayan-Meghji Lokhande
❖ Phase II - Period between World War I and World War II
▪ Royal Commission on Labour in 1929
❖ Phase III - During and Post-World War II
▪ Phase IV - Post-Independence
❖ Code of Discipline of Industries of 1962
▪ Phase V – Present
❖ Second National Commission on Labour
❖ Challenges faced by the labour movement after Independence
❖ Major Trade Unions in India

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5. Labour Laws and Indian Constitution on Labour laws

❖ Definition of Labour
❖ Concept of Labour Welfare and its Theory
❖ Preamble and Labour Law
❖ Fundamental Rights and Labour laws
❖ DPSPs and Labour laws
❖ Fundamental Duties and Labour laws
❖ What Seventh schedule says about Labour laws?
❖ Judiciary on labour laws

6. Trade Unionism in India

❖ Background of Trade Unions in India

❖ Meaning of a Trade Union
❖ Objectives of Trade Unions
❖ Characteristics of a Trade Union
❖ Functions of Trade Unions
❖ Structure of Trade Unions
❖ Five functional types of Trade Unionism by Robert F. Hoxie
❖ Classification based on agreement
❖ Other important Types
❖ Limitations of Trade Unions
7. Employer’s Associations
❖ Background
❖ Objectives of Employers’ organisations
❖ Structure of Employers’ organisations
❖ Functions of Employers’ organisations
❖ Present Employers’ Association in India
8. Major Labour Laws in India
❖ Trade Unions Act, 1926
❖ Payment of Wages Act, 1936
❖ Industrial Dispute Act, 1947
▪ Prevention of Industrial Disputes and Workers’ participation in Management
❖ Industrial Employment (Standing Orders) Act
❖ Factories Act, 1948
❖ Minimum wages act 1948
❖ Employees’ State Insurance Act, 1948
❖ Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

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 ❖ Apprentices Act, 1961
❖ Maternity Benefit Act, 1961
❖ Payment of Bonus Act, 1965
❖ Contract Labour( Regulation and Abolition)Act, 1970
❖ Payment of Gratuity Act, 1972
❖ Bonded Labour System (Abolition) Act, 1976
❖ Equal remuneration Act, 1976
❖ Child Labour (Prohibition and Regulation)Amendment Act, 1986

9. National commission on Labour

10. International Labour Organisation and India

11. Labour Codes (New Framework)

❖ Code on Wages, 2019

❖ Industrial Relations Code, 2020
❖ Social Security Code, 2020
❖ Occupational Safety, Health and Working Conditions Code, 2020

SOCIAL SECURITY (132-250)

1. Introduction and Objectives of Social Security
2. Scope of Social Security
3. The ILO and Social Security
4. Social Security in the Indian Constitutional and Institutional Framework
5. Social Security Laws in India
❖ The Employees' Compensation Act, 1923
❖ Payment of Wages Act, 1936
❖ Dock Worker's (Regulation of employment) Act, 1948
❖ The Mines Act, 1952
❖ The Employee's Provident Fund and Miscellaneous Provision Act, 1952
❖ Inter State Migrant workers (Regulation of employment and condition of service)
Act, 1979
❖ Building and other construction workers (Regulation of employment and
conditions of service) Act, 1996
❖ The National Rural Employment Guarantee Act, 2005
6. Impact of Social Security
7. Social Security Schemes in India

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INSURANCE IN INDIA (251-305)
1. Introduction
2. Principles of Insurance
3. Insurance related Schemes and policies
4. Important Insurance Terminologies

ACCOUNTING PRINCIPLES (306-370)

1. Introduction to Accounting
2. Accounting Concepts
3. Accounting Standards
4. Depreciation and Journal
5. Cash book
6. Trail Balance
7. Cash Flow Analysis
8. Partnership Firm
9. Share Capital
10. Debenture and Ratio Analysis
11. Consignment Account

AUDITING (371-392)
1. Introduction to Auditing
2. Planning of Audit and Control
3. Audit programme
4. Audit of Financial Statements

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 INDUSTRIAL RELATION AND LABOUR LAWS
CHAPTER 1 – ADVENT OF INDUSTRY AND INDUSTRIAL RELATIONS

Development of Industry before the Industrial Revolution

1. Proto-Industrialization: There was a large-scale industrial production for international

market but was not based on factories. It was controlled by merchants and the goods were
produced by a vast number of producers working within their family farms, not in factories.

2. 17th and 18th century: Merchants from the towns of Europe began moving to the
countryside, supplying money to peasants and artisans, persuading them to produce for
international market. Merchants offered advances for producing clothes for them at a time
when open fields were disappearing. Income from proto-industrial production
supplemented their shrinking income from cultivation.

The Coming Up of the Factory

• In 1730s the earliest factories in England came up.

• First symbol of the new era was cotton.
• Inventions in the 18th century increased the efficacy of each step of
production (carding, twisting, spinning and rolling). The output per worker also
rose.
• Richard Arkwright invented the cotton mill. Mill production of cotton started, which
allowed a more careful supervision over the production process. Cotton became the
leading sector in the first phase of industrialization.

The Pace of Industrial Change

• The expansion of railways in England and its colonies rapidly increased the
demand for iron and steel.
• The new, technologically advanced industrial sectors could not easily displace
the traditional industries. Textiles were still produced within domestic units and not
in factories.
• The high cost of machines and the uncertainty of their performance made
technological changes slow. Merchants and industrialists were cautious
about accepting and using the new technology.
• 1781: James Watt improved the steam engine produced by Newcomen
and patented the new engine.

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 • Introduction of machines required large capital investment. Hence, cheap labour
was preferred over the use of machines.
• Manual labour was also preferred in the industries where production fluctuated with
seasons.
• Goods with intricate designs and specific shapes were in great demand in
the European markets. This was possible only with hand labour and not
machine outputs.
• The aristocrats and the bourgeoisie in Victorian Britain preferred the refined
and carefully handmade products; machine made goods were for the colonies.

Life of the Workers

• Large scale migrations to towns and cities from countryside in search of jobs.
• Many job-seekers had to wait weeks, spending nights under bridges or in
night shelters. Workers became jobless after the busy season of work got over.
• Some returned to the countryside when the demand for labour in the rural
areas opened up.
• Most people looked for odd-jobs, which till the mid-19th century were difficult
to find.
• The fear of unemployment made workers hostile to the introduction of new
technology.

Origin of Industrial Relations

• As Kaufman writes in "The Global Evolution of Industrial Relations",

Industrial relations got its roots in the industrial revolution and the spread of
capitalism which created the modern employment relationship by spawning free
labour markets and large-scale industrial organizations with thousands of wage
workers.
• As both societies wrestled with these massive economic and social changes,
labour problems arose.
• Low wages, long working hours, monotonous and dangerous work, and
abusive supervisory practices led to high employee turnover, violent strikes, and
the threat of social instability and due to confluence of these event and ideas
associated with rise of democratic governments in the western world of the late
nineteenth and twentieth centuries.
• It emerged from both negative and positive impulses. The negative aspect,
industrial relations was a reaction against deplorable working condition and with
unrepressed profit making and employee clout in the nine teeth century and
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 twentieth century capitalism and this led to the deplorable situations a conflict
between capital and labour and hardship for employee of that time.
• So, we understand that Industrial relations arose as a reaction to the conflict
between the Employer and the Employee and a cordial relationship between
workers and employer could be improvised through a combination of scientific
discovery, education and legal reform.
• Intellectually, industrial relations was formed at the end of the 19th century as a
middle ground between classical economics and Marxism, with Sidney Webb
and Beatrice Webb's Industrial Democracy (1897) being the key intellectual
work.
• Institutionally, industrial relations was founded by John R. Commons when he
created the first academic industrial relations program at the University of
Wisconsin in 1920. Another scholarly pioneer in industrial relations and labour
research was Robert F. Hoxie.
• Beginning in the early 1930s there was a rapid increase in membership of labour
unions in America, and with that came frequent and sometimes violent labour-
management conflict.
• During World War II these were suppressed by the arbitration powers of the
National War Labour Board. However, as World War II drew to a close and in
anticipation of a renewal of labour-management conflict after the war, there was
a wave of creations of new academic institutes and degree programs that sought
to analyze such conflicts and the role of collective bargaining.

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 CHAPTER 8 - MAJOR LABOUR LAWS
THE TRADE UNIONS ACT, 1926

Introduction

The Trade Unions Act, 1926 provides for the registration of trade unions to promote the
lawful organisation of labour and facilitate collective bargaining. It grants registered
trade unions certain protections and privileges. The Act applies across India to all types
of worker unions and employer associations aiming to regulate labour-management
relations.

A Trade Union is any temporary or permanent combination formed to manage relations

between workmen and employers, workmen and workmen, or employers and
employers.

Appointment of Registrar

Under Section 3 of the Trade Unions Act, 1926, the appropriate Government (Central
or State) may appoint a Registrar of Trade Unions, along with Additional or Deputy
Registrars as needed. These officials function under the supervision of the Registrar and
may exercise powers within specified local limits.

Mode of Registration

While registration is not mandatory, it is beneficial as registered trade unions receive

legal rights and privileges.

Under Section 4, any seven or more members of a trade union may apply for registration,
provided:

• At least 7 members are employed in the establishment on the date of application.

• At least 10% or 100 members (whichever is less) of the establishment are part of
the union.

If the union is over one year old, a statement of assets and liabilities in the prescribed
format must accompany the application.

Rules of a Trade Union: As per Section 6, a trade union must have a properly formed
executive committee and comply with specified rules; otherwise, it won't be recognized.

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Registrar’s Power to Call for Information: Under Section 7, the Registrar may request
additional information to verify an application. If discrepancies are found and not
corrected, the application may be rejected.

Registration: According to Section 8, once the Registrar is satisfied that all legal
requirements are met, the trade union is registered by recording its details as prescribed.

Certificate of Registration: Under Section 9, the Registrar issues a certificate of

registration, which serves as conclusive proof of the union’s legal registration.

Minimum Membership Requirement: As per Section 9A, a registered trade union must
always have at least 10% or 100 workers, whichever is less (but not fewer than seven),
from the connected establishment as its members.

Cancellation of Registration: As per Section 10 of the Act, the Registrar may cancel or
withdraw a trade union’s registration under the following conditions:

• On a formal application by the union.

• If registration was obtained through fraud or deceit.

• If the union has ceased to exist.

• If the union wilfully violates the Act, even after notice.

• If the union rescinds any mandatory rule under Section 6.

Legal Status of a Registered Trade Union

Section 13 of the Act states that every trade union which is registered according to the
provisions of the Act, shall:

• Become a body corporate by the name under which it is registered.

• Have perpetual succession and a common seal.
• Power to contract and hold and acquire any movable and immovable property.
• By the said name can sue and be sued.

Criminal conspiracy in Trade Disputes

• Section 17 of the Act states that no member of a trade union can be held liable for
criminal conspiracy regarding any agreement made between the members of the
union in order to promote lawful interests of the trade union.

Immunity from civil suits in certain cases

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 • Section 18 of the Act protects the members of trade union from civil or tortious
liabilities arising out of any act done in furtherance or contemplation of any trade
disputes.

Appointment of Office Bearers

At least 50% of office bearers must be employed in the related industry; the
remaining may be outsiders (e.g., lawyers, politicians, social workers).
To qualify as an office bearer, a person must:

• Be at least 18 years old

• Not have a conviction for moral turpitude, or 5 years must have passed since
release from imprisonment.

Change of Name

• A union may change its name with consent of at least 2/3rd members.

• A written notice, signed by the secretary and 7 members, must be sent to the
Registrar.

• The Registrar will approve the change if the new name is not identical to an existing
union and all requirements are met.

• The change does not affect the union’s rights, obligations, or legal proceedings.

Change of Registered Office

• Notice of the change must be given to the Registrar in writing within 14 days.

Amalgamation of Trade Unions

Under Section 24 of the Trade Unions Act, 1926, a registered trade union may
amalgamate with another union if:

• At least 50% of members of each union vote, and

• At least 60% of those votes are in favour of amalgamation.

A notice of amalgamation, signed by the secretary and 7 members of each union,
must be sent to the Registrar. The amalgamation takes effect once it is registered.

Dissolution of a Trade Union

A registered trade union may be dissolved as per its rules.

A notice of dissolution, signed by 7 members and the secretary, must be submitted

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 to the Registrar within 14 days.Upon satisfaction, the Registrar will register the
notice, and the union shall be officially dissolved.

The union’s funds will be distributed among members as per the union’s rules or as
directed by the government.

Obligations of Registered Trade Unions

1. General Fund Usage

The general fund of a registered trade union must be used only for approved purposes,
including:

• Salaries of office-bearers

• Administrative expenses

• Compensation during trade disputes

• Welfare activities for workers

• Support in cases of unemployment, disability, or death

• Legal expenses

• Educational and awareness efforts

• Medical treatment and insurance for workers

Non-contribution to the fund cannot be a reason to deny membership, and

contributions are voluntary.

2. Separate Political Fund

To promote civic and political interests. Contribution is optional, and refusal does
not affect membership.

3. Records and Transparency

• Account books and membership registers must be open for inspection by office-
bearers.

• Any change in rules must be reported to the Registrar within 15 days.

• An annual audited statement of receipts, expenditures, assets, and liabilities

(as of 31st December) must be sent to the Registrar within the prescribed time,
along with:

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 o A list of changes in office bearers

o An updated copy of rules

• Certain Acts shall not apply to registered Trade Unions namely –

1. The Societies Registration At, 1863.
2. The co-operative Societies Act, 1912.
3. The Company Act shall not apply to any registered Trade Union, had the
registration of any such Trade Union under any such Act shall be void.

Payment of Wages Act, 1936

The main objective of the Act is to eliminate malpractices in wage payments by specifying
the time and mode of wage payment and ensuring that workers are paid regularly without
unauthorized deductions. The Act extends to the whole of India.

Definition of Wages Includes:

• Any remuneration payable under any award or court order.

• Any remuneration for overtime work, holidays, or leave periods.
• Any additional remuneration under the terms of employment, including bonus.

Wages Do Not Include:

• Any bonus not covered under the terms of employment.

• Value of house accommodation, supply of light, water, or medical attendance.
• Employer's contribution to Provident Fund or Pension and the interest thereon.
• Travelling allowance or value of travelling concession.
• Gratuity payable upon termination of employment.

Fixation of Wage Period:

• The person responsible for paying wages must fix a wage period, which must not
exceed one month.

Time of Payment of Wages:

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 • In establishments with less than 1000 employees, wages must be paid before the
expiry of the 7th day after the wage period ends.
• In other establishments, wages must be paid before the expiry of the 10th day after
the wage period ends.
• In case of termination of employment, wages must be paid before the end of the
second working day from the date of termination.
• In case of closure of establishment, wages must also be paid before the end of the
second working day from the date of termination.
• All wage payments must be made on a working day.
• Wages must be paid in current coins or currency notes.
• With the consent of the employee, wages can also be paid either through a cheque
or by crediting the amount to the employee’s bank account.

Permissible Deductions from Wages

The following deductions can legally be made from an employee's wages:

• Fines
• Absence from duty
• Damage or loss of goods entrusted to the employee
• Charges for housing accommodation or other amenities provided by the employer
• Recovery of advances or any overpayment of wages
• Repayment of loans
• Subscriptions to the Provident Fund
• Income tax
• Payment of life insurance premiums or for the purchase of securities

Rules Regarding Fines

• The total fine amount must not exceed 3% of the wages payable in a wage period.
• No fine can be imposed on an employee who is under 15 years of age.
• Fines must be recovered within 90 days, and cannot be recovered in instalments
beyond this period.

Miscellaneous Provisions

• If any deduction is made from wages, the employee may file a claim within 12
months from the date of deduction or from when the wages became due.

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• The claim must be resolved within 3 months from the date of its registration by
the competent authority.
• If the application is found to be malicious, the employee may be required to pay a
penalty of up to ₹375 to the employer.

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 CHAPTER 11 - NEW LABOUR CODES

Industrial Relations Code, 2020

Introduction

The Industrial Relations Code, 2020 is one of the four labour codes introduced by the
Government of India to simplify, consolidate, and modernize the complex framework of
labour laws in the country. This Code seeks to improve the industrial relations ecosystem
by balancing the rights of employers and employees, while promoting industrial peace
and productivity.

Acts Merged into the Industrial Relations Code

The following three laws have been repealed and subsumed into the Industrial Relations
Code:

1. Trade Unions Act, 1926

2. Industrial Employment (Standing Orders) Act, 1946
3. Industrial Disputes Act, 1947

Objectives of the Code

• To consolidate laws related to trade unions, conditions of employment, and

industrial disputes.
• To simplify and streamline the process for resolving industrial disputes.
• To enhance ease of doing business while ensuring workers’ rights.
• To create a harmonious relationship between employers and workers.
• To promote transparency, compliance, and fairness in industrial relations.

Key Definitions in the Code

1. Industry

• Any systematic activity carried on by cooperation between an employer and

employee (for production, supply, or distribution of goods/services).
• Includes government enterprises but excludes:
o Institutions for charitable, social, or philanthropic service

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 o Activities related to sovereign functions (like defence, atomic energy, space)

2. Industrial Dispute

• Any dispute or difference between employers and workers, or among workers,

related to:
o Employment or non-employment
o Terms of employment
o Conditions of labour

3. Employer

• A person or organization employing workers and includes:

o Manager
o Managing director
o Contractor
o Legal representative of a deceased employer

4. Worker

• Any person employed in an industry to do manual, unskilled, skilled, technical,

operational, clerical, or supervisory work.
• Excludes:
o Persons in managerial or administrative roles
o Supervisory staff earning more than ₹15,000 per month

5. Trade Union

• Any combination of workers or employers formed to regulate relationships between

workers and employers or among workers/employers themselves.

6. Lay-off

• Temporary inability of an employer to provide work to a worker due to lack of raw

materials, power failure, breakdown of machinery, natural calamity, etc.

7. Retrenchment

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 • Termination of a worker’s service by the employer for any reason other than
disciplinary action, voluntary retirement, or superannuation.

8. Closure

• Permanent shutting down of a place of employment or part of it.

Key Provisions of the Industrial Relations Code, 2020

1. Trade Unions

• Recognition of negotiating unions:

o If a single union has 51% or more membership, it is recognized as the sole
negotiating union.
o If no single union has 51%, a negotiating council will be formed from unions
having at least 20% membership.
• Aims to reduce multiplicity of trade unions and streamline collective bargaining.

2. Standing Orders

• Applicable to industrial establishments with 300 or more workers (earlier

threshold was 100).
• Employers must prepare standing orders (rules of conduct, holidays, leave,
suspension, termination, etc.) and get them certified.
• Workers must be informed of service conditions in a written and standardized
manner.

3. Notice for Lay-off, Retrenchment, and Closure

• Establishments with 300 or more workers must take prior approval from the
government before:
o Retrenchment
o Lay-off
o Closure

(Earlier this threshold was 100 workers under the Industrial Disputes Act.)

4. Worker Re-skilling Fund

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 • A Re-skilling Fund will be created for retrenched workers.
• The employer is required to contribute an amount equivalent to 15 days' wages for
every retrenched worker to this fund.
• This amount is to be credited directly to the worker’s account.

5. Dispute Resolution

• Industrial disputes to be resolved through the following mechanisms:

o Conciliation Officers
o Industrial Tribunals
o National Industrial Tribunal (for interstate disputes or matters of national
importance)
• No strike or lockout is allowed without prior notice (60 days), and during:
o Conciliation proceedings
o Tribunal proceedings
o Seven days after conclusion of such proceedings

6. Provisions Related to Strikes and Lockouts

• Mandatory notice must be given 60 days before striking.

• Strikes and lockouts are prohibited:
o During conciliation or tribunal proceedings
o Within 7 days after their conclusion

Benefits of the Code

For Workers:

• Clarity and security in service conditions

• Improved dispute resolution mechanisms
• Protection against arbitrary retrenchment
• Right to form registered, recognized trade unions
• Re-skilling support in case of job loss

For Employers:

• Greater flexibility in hiring and exit

• Simplified compliance through consolidated legislation

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 • Digital processes for certification and registration
• Reduced legal disputes due to clear definitions and rules

For the Economy:

• Promotes industrial harmony

• Encourages investment and business growth
• Enhances labour market flexibility

Conclusion

The Industrial Relations Code, 2020 is a significant reform in India’s labour law
framework. By balancing the rights of workers and employers, and encouraging
structured negotiations and dispute resolution, it aims to create a more transparent,
fair, and productive industrial environment. The Code also reflects a shift towards greater
formalization and modern labour practices in line with India’s economic aspirations.

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 SOCIAL SECURITY
CHAPTER 1. INTRODUCTION AND OBJECTIVES OF SOCIAL SECURITY

Meaning of Social Security

Social Security essentially refers to a system that protects a worker and his/her
family against work-related or health-related risks and eventualities. These risks
may arise in the form of:

• Sickness

• Maternity

• Disability

• Death

• Unemployment

• Old age

In the Indian context, social security provisions aim to cover treatment, rehabilitation,
or compensation in such situations.

If a society fails to provide social security, individuals may lose their basic dignity,
leading to large-scale problems such as destitution, child labour, rising crime, and
social instability.

Definition of Social Security by Sir William Beveridge

In 1942, Sir William Beveridge chaired a committee to review the existing national
social insurance schemes in Great Britain during the post-war period.

In his Beveridge Report, he defined social security as:

“The security of an income to take the place of earnings when they are interrupted by
unemployment, sickness, or accident; to provide for retirement through age; to provide
against the loss of support due to death of another person; and to meet exceptional
expenditure, such as those connected with birth, death, and marriage.”

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Beveridge argued that there were five giants threatening society, which social security
measures must tackle:

1. Want (poverty and deprivation)

2. Disease (ill health and lack of medical care)

3. Ignorance (lack of education and awareness)

4. Squalor (poor housing and unhygienic living conditions)

5. Idleness (unemployment and lack of productive work)

Major Characteristics of Social Security

• Legal Framework: Social Security measures are backed by law.

• Income Replacement: They provide cash benefits to replace at least a portion of

income during contingencies such as unemployment, maternity, employment injury,
sickness, or old age.

• Forms of Benefits: These benefits are provided through three major approaches:

1. Social Assistance

2. Social Insurance

3. Public Services

At present, the two most widely adopted techniques are social assistance and social
insurance.

Social Assistance

Social Assistance refers to welfare schemes where the state directly provides
financial aid or medical relief to those in need, particularly individuals who cannot
sustain themselves due to lack of resources.

According to the International Labour Organization (ILO):

“Social assistance schemes provide benefits to persons of limited means, granted as of

right, sufficient to meet a minimum standard of need, and financed from taxation.”

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Key Features of Social Assistance:

• Entirely financed from general state revenues (taxation).

• Benefits are provided free of cost.

• Designed to uplift weaker sections of society who cannot independently ensure their
livelihood.

Social Insurance

The concept of Social Insurance was first introduced by Otto von Bismarck in
Germany and has since spread across the world.

It is a system of planned insurance intended to protect workers and their families

against income loss due to work-related contingencies.

Basic Features of Social Insurance:

• Risk-sharing: Certain risks that cannot be managed individually are collectively

borne by a group.

• Pooling of resources: Members contribute to a common fund.

• Benefit entitlement: Benefits are provided during emergencies to maintain a

minimum standard of living.

• Compulsory contributions: Workers are obliged to contribute since they are

compulsorily insured against defined risks.

• Security of wages: Ensures continuity of income despite illness, unemployment, or

old age.

Objectives of Social Security

The objectives of Social Security can be grouped into three major categories:

1. Compensation

• Ensures security of income during contingencies.

• Prevents individuals and their families from facing a double calamity: the loss of
livelihood combined with the loss of health, life, or work capacity.

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2. Restoration

• Aims at restoring an individual to his/her earlier condition.

• Includes medical care, reemployment, or rehabilitation after sickness, accident,

or unemployment.

• Seen as an extension of compensation, focusing not only on income replacement but

also on recovery.

3. Prevention

• Focuses on avoiding loss of productive capacity in the first place.

• Involves preventive healthcare, employment promotion, and safety measures to

reduce risks of sickness, unemployment, or permanent disability.

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 CHAPTER 4. SOCIAL SECURITY IN THE INDIAN CONSTITUTIONAL
AND INSTITUTIONAL FRAMEWORK

Social Security and the Idea of Welfare State

The Indian Constitution envisions India as a welfare state, where the state assumes
responsibility for the well-being of its citizens. This vision is reflected in the Directive
Principles of State Policy (DPSP), which form the foundation of social security in the
country.

Economists Amartya Sen and Jean Drèze distinguish between two key aspects of
social security:

1. Protection

o Protection is concerned with shielding individuals from a fall in living

standards and living conditions due to contingencies such as ill health,
accidents, or death.

o It primarily relates to social insurance schemes, where risks are pooled, and
contributory efforts by employees, employers, and the state guarantee
financial support.

2. Promotion

o Promotion emphasizes the creation of enhanced living conditions that allow

people to overcome persistent deprivations and expand their capabilities.

o It largely relates to social assistance schemes, where the state provides direct
support, particularly for weaker sections, through taxation-based
programmes.

Constitutional Provisions of Social Security in India

The Indian Constitution lays down the foundation for social security by envisioning
India as a welfare state. While social security is not explicitly mentioned as a
Fundamental Right, its spirit is embedded in the Directive Principles of State Policy
(DPSP), certain Fundamental Rights, and the Concurrent List of the Seventh
Schedule.

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1. Directive Principles of State Policy (Part IV)

DPSPs provide a framework for the state to ensure social justice, economic security,
and welfare. They are non-justiciable but act as guiding principles for governance.

• Article 38 – The State shall strive to promote the welfare of the people by securing
a social order in which justice—social, economic, and political—shall inform all
institutions of national life.

o Example: National Food Security Act (2013), MGNREGA (2005).

• Article 39 – Directs the state to ensure:

o Adequate means of livelihood for all.

o Equal pay for equal work (Article 39(d)).

o Protection of workers’ health and strength.

o Example: Equal Remuneration Act, 1976; Minimum Wages Act, 1948.

• Article 39A – Ensures free legal aid for the poor and weaker sections.

o Example: Legal Services Authorities Act, 1987.

• Article 41 – Directs the state to make effective provision for securing the right to
work, to education, and to public assistance in cases of unemployment, old age,
sickness, disablement, and undeserved want.

o Example: Mahatma Gandhi National Rural Employment Guarantee Act

(MGNREGA, 2005); National Social Assistance Programme (NSAP).

• Article 42 – Provides for just and humane conditions of work and maternity
relief.

o Example: Factories Act, 1948; Maternity Benefit Act, 1961 (amended 2017).

• Article 43 – Directs the state to secure living wage, decent conditions of work,
and a decent standard of life.

o Example: Code on Wages, 2019.

• Article 43A – Participation of workers in the management of industries.

o Example: Provisions for workers’ participation in management in public sector

undertakings.

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 • Article 45 – Right to early childhood care and education for all children below six
years.

o Example: Integrated Child Development Services (ICDS); Right to Education

Act, 2009.

• Article 47 – Duty of the state to raise the level of nutrition and standard of living
and improve public health.

o Example: Ayushman Bharat, National Health Mission.

2. Fundamental Rights (Part III)

While not directly labelled as “social security,” certain Fundamental Rights support
social protection:

• Article 14 (Right to Equality) – Ensures equal protection of laws, important for

preventing discrimination in wages, employment, or access to welfare schemes.

• Article 15 – Prohibits discrimination on grounds of caste, sex, religion, etc. (forms

basis of welfare schemes for women, SC/ST, and backward classes).

• Article 16 – Equality of opportunity in employment.

• Article 21 (Right to Life and Personal Liberty) – Interpreted by the Supreme Court
to include Right to Livelihood, Right to Health, and Right to Education.

o Example: Olga Tellis v. Bombay Municipal Corporation (1985) – “Right to

Livelihood” part of Article 21.
o Paschim Banga Khet Mazdoor Samity v. State of West Bengal (1996) – “Right
to Health” included in Article 21.

• Article 23 – Prohibits forced labour.

• Article 24 – Prohibits child labour in hazardous industries.

3. Seventh Schedule – Concurrent List

• Entry 23 of the Concurrent List: Social security and social insurance, employment
and unemployment.

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 • Entry 24: Welfare of labour, including conditions of work, provident funds,
employers’ liability, workmen’s compensation, maternity benefits, etc.

• This allows both the Union and State governments to legislate on social security
matters.

o Example: Employees’ State Insurance Act, 1948; Unorganised Workers’ Social

Security Act, 2008.

4. Judicial Interpretation

The Supreme Court has expanded the meaning of social security through landmark
judgments:

• Right to Health → State of Punjab v. Mohinder Singh Chawla (1997).

• Right to Livelihood → Olga Tellis case (1985).

• Right to Education → Unni Krishnan v. State of Andhra Pradesh (1993).

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 CHAPTER 7. SOCIAL SECURITY SCHEMES IN INDIA
1. Pradhan Mantri Shram Yogi Maan-Dhan Yojana (PM-SYM) – Old Age Protection
Scheme

The Pradhan Mantri Shram Yogi Maan-Dhan Yojana (PM-SYM) is a flagship social
security initiative launched by the Government of India in 2019 to provide old age
protection to unorganised sector workers, who form a large portion of India’s workforce
and are often excluded from formal pension schemes.

It is a voluntary and contributory pension scheme, where both the worker and
the government share equal responsibility in ensuring financial security for the worker’s
post-retirement life.

Key Features of the Scheme

• Nature of Scheme: Voluntary and contributory pension scheme.

• Contribution:

o Monthly contribution ranges between ₹55 and ₹200, depending on the entry age
of the beneficiary.

o 50% of the contribution is paid by the worker, while the remaining 50% is
matched by the Central Government.

• Administration: Implemented through Common Service Centres (CSCs) across the

country and monitored by the Ministry of Labour & Employment.

Eligibility Criteria

To be eligible under PM-SYM, the applicant must fulfill the following conditions:

1. Citizenship: Must be an Indian citizen.

2. Occupation: Should be engaged in the unorganised sector such as:

o Street vendors, construction workers, agricultural labourers.

o Workers in small industries such as leather, handloom, bidi-making, brick kilns,

fisheries, carpentry, rickshaw pulling, rag-picking, mid-day meal workers, etc.

3. Age Group: Must be between 18 and 40 years of age at the time of entry into the
scheme.

4. Income Limit: Monthly income should be below ₹15,000.

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5. Exclusions:

o Not a member of EPFO (Employees’ Provident Fund Organisation), ESIC

(Employees’ State Insurance Corporation), or NPS (National Pension Scheme).

o Not an income tax payer.

Benefits of the Scheme

1. Assured Pension:

o After attaining the age of 60 years, beneficiaries are entitled to receive a monthly
pension of ₹3,000.

o This ensures financial stability and dignity during old age.

2. Family Pension Benefit:

o In the event of the death of the beneficiary, the spouse will be entitled to 50%
of the monthly pension (i.e., ₹1,500 per month).

o This provision provides continued social security to dependent family members.

3. Joint Pension for Couples:

o If both husband and wife join the scheme, they are eligible for a combined
monthly pension of ₹6,000 (₹3,000 each), thereby strengthening the economic
security of the household.

Significance of PM-SYM

• Addresses the vulnerability of unorganised workers who have no formal savings

or pension schemes.

• Provides a safety net against poverty in old age.

• Enhances social inclusion and dignity of labour, aligning with the vision of Sabka
Saath, Sabka Vikas, Sabka Vishwas.

• Complements other social security initiatives like Atal Pension Yojana, Pradhan
Mantri Jeevan Jyoti Bima Yojana (PMJJBY), and Pradhan Mantri Suraksha Bima
Yojana (PMSBY).

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2. National Pension Scheme for Traders and Self-Employed Persons (NPS-Traders)

The National Pension Scheme for Traders and Self-Employed Persons (NPS-
Traders) is a voluntary and contributory pension scheme introduced by the Government
of India to provide old-age protection and social security to small shopkeepers, traders,
and self-employed individuals engaged in various occupations. It aims to ensure that even
those in the unorganised sector—who are usually not covered under formal retirement
benefits—have financial support during their old age.

Key Features

• The scheme is voluntary (beneficiaries may join if they wish) and contributory (both
the beneficiary and government contribute).

• The monthly contribution depends on the age of entry, ranging between ₹55 and
₹200.

• The contribution is shared equally:

o 50% is paid by the beneficiary.

o 50% is contributed by the Central Government.

Eligibility Criteria

To ensure that only the intended beneficiaries are covered, certain conditions are applied:

1. Citizenship – The applicant must be an Indian citizen.

2. Occupational Scope – The scheme is primarily targeted at:

o Small shopkeepers,

o Petty traders,

o Self-employed individuals such as owners of small restaurants, hotels, or retail

outlets,

o Real estate brokers and similar professions.

3. Age – Entry is allowed only between 18 and 40 years.

4. Exclusions – The scheme is not applicable to individuals already covered under:

o Employees’ Provident Fund Organisation (EPFO),

o Employees’ State Insurance Corporation (ESIC),

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 o Pradhan Mantri Shram Yogi Maan-Dhan Yojana (PM-SYM).

5. Income Threshold – The applicant’s annual turnover should not exceed ₹1.5 crore,
ensuring that the scheme benefits small traders and not large business owners.

Benefits

• After reaching the age of 60 years, the beneficiary becomes entitled to a monthly
assured pension of ₹3,000.

• This pension ensures financial stability in old age, particularly for those who lack
savings or formal retirement plans.

• The scheme acts as a social safety net, reducing old-age poverty among small
traders and self-employed individuals who contribute significantly to India’s
economy but are often excluded from institutional social security systems.

3. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) is a government-backed life
insurance scheme launched to provide affordable life cover to a wide section of the Indian
population, especially those in the low-income and unorganised sectors. It ensures that in
case of the unfortunate death of the insured, the family receives financial support.

Eligibility Criteria

To be enrolled under this scheme, the following conditions must be fulfilled:

1. Citizenship – The applicant must be an Indian citizen.

2. Age Limit – The scheme is open to individuals between the ages of 18 and 50 years.

3. Bank Account Requirement – The beneficiary should have a savings bank account
or Jan Dhan account, which will be linked with Aadhaar for identification.

4. Premium Payment Mode – The premium is collected through an auto-debit facility

from the beneficiary’s bank account, but only after obtaining consent.

Benefits of the Scheme

• In the event of the death of the insured (from any cause), the nominee will receive
a life insurance cover of ₹2 lakh.

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 • The scheme offers a uniform annual premium of ₹436, making it highly affordable
and inclusive.

• The premium is deducted automatically from the bank account, ensuring ease of
participation and reducing the chances of default.

Salient Features

• Provides risk coverage of ₹2 lakh, which can be a significant relief for the family of
the deceased.

• One-year cover, renewable every year, allowing flexibility for the subscriber.

• Designed to bring the unorganised sector and low-income households under the
ambit of life insurance protection, where traditionally insurance penetration is low.

• The scheme is implemented through Life Insurance Corporation of India (LIC) and
other life insurers willing to offer it on similar terms.

4. Pradhan Mantri Suraksha Bima Yojana (PMSBY)

The Pradhan Mantri Suraksha Bima Yojana (PMSBY) is a government-backed accident

insurance scheme launched to provide affordable risk coverage to citizens, particularly
those belonging to the weaker and unorganised sections of society. It aims to ensure that
families are financially supported in case of accidental death or disability of the earning
member.

Eligibility Criteria

To avail benefits under this scheme, an individual must:

1. Be an Indian Citizen.

2. Belong to the age group of 18 to 70 years.

3. Possess a savings bank account or Jan Dhan account linked with Aadhaar for
proper identification.

4. Provide consent for auto-debit of the annual premium directly from the bank
account.

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Benefits of the Scheme

• In case of accidental death or permanent total disability, the insured’s nominee

receives a risk coverage of ₹2 lakh.

• In case of permanent partial disability, the insured is entitled to a coverage of ₹1

lakh.

• The scheme ensures quick and simple access to financial relief in times of accidental
mishaps, safeguarding vulnerable families.

Premium Details

• The scheme comes at a very nominal annual premium of ₹20, making it affordable
to the poorest sections of society.

• The premium is auto-debited from the insured person’s savings bank account,
ensuring hassle-free and timely payments without requiring active renewals.

Salient Features

• Provides accident insurance coverage at extremely low cost.

• Designed especially for low-income and unorganised sector workers, who are often
most vulnerable to accidental risks.

• Renewable one-year cover, allowing continued protection as long as premiums are

paid annually.

• Implemented by Public Sector General Insurance Companies (PSGICs) and other

general insurers willing to offer the scheme on similar terms.

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 INSURANCE IN INDIA
CHAPTER1. INSURANCE IN INDIA – INTRODUCTION
• Definition & Concept

o Insurance is a social and financial mechanism designed to reduce or

eliminate the risk of loss to life, property, or other valuables.

o It is essentially a provision made by a prudent individual to guard against

inevitable contingencies, misfortunes, or losses.

o Through an insurance arrangement, a large group of people pool their risks,

sharing potential losses.

o The risks covered may include:

▪ Fire (Fire Insurance)

▪ Marine hazards (Marine Insurance)

▪ Death (Life Insurance)

▪ Accidents, theft, and other unforeseen events (General Insurance)

o Any risk contingent upon such events can be insured for a premium
proportionate to the level of risk involved.

o Core principle: Collective bearing of risk through financial contributions.

• Nature of Contract

o Insurance is a contract between the insurer and the insured.

o The insurer agrees to:

▪ Pay a fixed sum (in case of life insurance) on the occurrence of a specific
event (death, reaching a certain age, etc.)

▪ Compensate for actual losses suffered due to insured risks (in general
or non-life insurance)

o The insured agrees to pay a premium as consideration for this protection.

1. Origin of Insurance

• Ancient Beginnings
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 o Maritime Insurance is the oldest form of insurance, followed by life and fire
insurance.

o Practiced in ancient Greece and among maritime traders.

o Initially aimed at sharing the huge risks involved in sea voyages.

• Development in Europe

o Evolved during the 14th century in commercial cities of Italy as a risk-sharing

practice in trade.

o Spread to London in the 16th century.

o The Lloyd’s Group of Shipowners became a hub for marine insurance and
remains the world’s largest underwriting body.

• Expansion to the USA

o The first American insurance company was founded by Benjamin Franklin in

1752.

• Broadening Scope

o From the mid-19th century, insurance expanded to cover:

▪ Life

▪ Fire

▪ Accidents

▪ Other business-related risks

2. History of the Insurance Sector in India

• Ancient Roots

o References found in:

▪ Manusmriti

▪ Yajnavalkya Smriti (Dharmashastra)

▪ Kautilya’s Arthashastra

o Early forms of resource pooling for redistribution in calamities such as:

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 ▪ Fire

▪ Flood

▪ Epidemics

▪ Famines

o Early traces seen in marine trade loans and carrier’s contracts.

• Influence from England

o Modern life insurance was introduced to India from England in 1818.

o Oriental Life Insurance Company (Calcutta) was the first life insurance
company in India, started by Europeans.

o Initially:

▪ Insurance catered only to the European community.

▪ Indian natives were excluded from coverage.

• Gradual Inclusion of Indians

o Babu Muttylal Seal and other reformers advocated for Indian lives to be
insured.

o Initially, Indian lives were classified as "sub-standard", attracting higher

premiums.

• Milestones in Indian Insurance

o 1870 – Bombay Mutual Life Assurance Society:

▪ First Indian life insurance company.

▪ Covered Indian lives at normal rates.

▪ Founded with patriotic motives to promote social security.

o 1896 – Bharat Insurance Company:

▪ Established to spread insurance awareness across society.

▪ Inspired by nationalism.

o Swadeshi Movement (1905–1907):

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 ▪ Led to the establishment of several Indian-owned insurance
companies.

▪ Reflected the spirit of self-reliance and economic independence.

History of the Indian Insurance Sector

A. Before Independence

• The Indian National Congress and the Swadeshi Movement (early 20th century)
inspired a preference for Indian goods and services, sparking the rise of home-grown
insurance firms.

• Indian insurance began to flourish in response to the First World War, with notable
entities such as The Hindustan Co-operative, The Urban Life, The Oriental Life,
and General Assurance emerging.

• Between 1919 and 1932, economic recession prompted several industrialists to

found their own insurance ventures:

o New Oriental (New Asian) by the Tata Group (1919)

o The Jupiter General by Lalaji Narnji (1919)

o Others: Laxmi, Vulcan, The British India, The Zenith

• Insurance operations were minimal until World War II, but thereafter they surged.
By 1920, only about 80 Indian insurance firms existed, which multiplied to roughly
240 by the onset of the war.

• The government responded by establishing a committee under Sir Cowasjee

Jahangir to investigate the sector, noting concerns over speculative practices and
unsatisfactory operations.

B. After Independence

• By 1946, just before Partition, India had 218 head offices (and the same number
in total insurance firms), with the network undergoing significant restructuring post-
independence.

• Between 1952–1955, the sector experienced a pre-nationalization phase. In 1955,

the insurance industry recorded:

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 o Business worth ₹2,207 crore from 749,000 policies

o Total investments of ₹318.9 crore

• The Insurance Act of 1956 marked a watershed moment: India nationalized the
life insurance sector on 1 September 1956—one of the first countries to do so.
The government took over management of 245 existing firms, though they
continued to operate under separate ownership until full consolidation later.

C. During the Globalization Period

• In the 1990s, India’s broader economic liberalization set the stage for reform in
insurance.

• A high-level committee led by Shri R. N. Malhotra in 1993 recommended a strong,

independent regulatory body resembling SEBI.

• By 1999, both life and non-life insurance segments were opened to private
players, culminating in the establishment of the Insurance Regulatory and
Development Authority (IRDA) in April 2000—ushering in an era of competition
and innovation.

Recent Developments & Current Trends

Here are some of the latest updates and reforms transforming India’s insurance landscape:

• Pan-sector reforms in 2024 by IRDAI included wider add-on choices, extended free-
look periods, strict claim settlement timelines, revised surrender charges, and a new
customer information sheet—all aimed at simplifying insurance for consumers.

• In July 2025, life insurance premium income surged by 22.4% (₹38,958 crore),
reflecting robust demand and improved market strategies.

• Non-life insurance premiums grew by 5.2% in June 2025, with FY25 premiums
crossing ₹3 lakh crore. Growth was supported by digitalization and the Bima Trinity
initiative, though health and vehicle segments had moderate performance.

• IRDAI’s reforms in late 2024—removing upper age limits for health insurance,
improving surrender values, and encouraging composite products and embedded
insurance—set the sector up for future growth and inclusivity.

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 • IRDAI proposed appointing internal ombudsmen in insurers to enhance grievance
redressal, though concerns linger about maintaining their impartiality.

• The National Health Claims Exchange may now fall under stricter oversight by
IRDAI and the finance ministry to curb healthcare cost inflation and address
premium hikes.

• In the reinsurance space, two major developments are shaking things up:

o A 50:50 reinsurance venture between Allianz and Jio Financial Services

o Valueattics Re, a Fairfax-backed insurer, becoming the first private

reinsurer to challenge GIC Re’s five-decade monopoly.

• Aon India has outlined its strategy focusing on digital transformation, sectoral
specialization, and expanding geographic reach—especially in areas like cyber, ESG-
linked insurance, and supply-chain risk.

• Budget 2025 introduced plans for 100% FDI in insurance, with premiums
mandated to be invested within India, signaling potential for major capital and know-
how infusion.

• SBI General Insurance is part of SBI’s push to improve rural penetration by opening
dedicated health insurance branches in tier-3 and -4 cities.

• New product launch: SBI Life – Smart Shield Plus, a pure protection (non-linked,
non-participating) life plan, catering to evolving consumer needs.

• Consumer protection in senior health insurance: IRDAI capped premium hikes

for those aged 60+ to 10%, along with mandates for hospital rate negotiation and
improved claim processing.

• Notable acquisitions: Aegon Life Insurance was rebranded as Bandhan Life in April
2024, after its acquisition by Bandhan Financial Holdings.

• Technology & innovation: IRDAI plans to roll out Risk-Based Capital (RBC) norms
between 2025–27, aligning with global solvency frameworks to ensure financial
resilience

Milestone Table: Key Historical Developments in Indian Insurance

Early Regulations & Nationalization

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• 1912 – Life Insurance Companies Act enacted, mandating actuarial certification
of premium rate tables to ensure scientific pricing and financial prudence.

• 1938 – The Insurance Act, 1938 introduced the first overarching legal framework
governing all types of insurance, establishing stringent state control and regulatory
oversight.

• 1956 (January 19) – Life Insurance Corporation Act passed; nationalized life
insurance by merging 245 companies into the LIC, consolidating all operations
under one unified entity.

• 1957 – Formation of the General Insurance Council under the Insurance

Association of India, setting up a code of conduct to promote fair business practices
across the sector.

• 1968 – Amendment to the Insurance Act to regulate insurers’ investments,

prescribe minimum solvency norms, and creation of the Tariff Advisory Committee
for pricing oversight.

• 1972–73 – General Insurance Business (Nationalisation) Act, 1972 led to the

merger of 107 insurers into four public-sector giants—National, Oriental, New
India, and United India Insurance companies.

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 CHAPTER 3. INSURANCE RELATED SCHEMES AND POLICIES

Pension Fund Regulatory and Development Authority (PFRDA)

Background & Evolution

• 1999 – OASIS Project: The Indian government launched the “OASIS” initiative to
explore old-age income security. It recommended transitioning from a Defined
Benefit to a Defined Contribution Pension System for new Central/State
government employees (excluding armed forces).

• 2003 – Interim PFRDA & NPS Launch: The Interim PFRDA was established to
regulate the newly introduced National Pension System (NPS), effective from 1
January 2004.

• 2009 – NPS for All Citizens: NPS was opened voluntarily to all Indian citizens,
including self-employed and those in the unorganised sector, from 1 May 2009.

• 2013–14 – Statutory Status: The PFRDA Act was passed on 19 September 2013
and notified on 1 February 2014, granting PFRDA statutory authority to govern
pension markets and oversee NPS.

Purpose & Mission

• Role: PFRDA is an autonomous statutory body overseeing NPS, offering retirement

security to government employees, private sector workers, and the unorganised.

• Headquarters: Based in New Delhi.

• Mission: “To promote old-age income security by establishing, developing, and

regulating pension funds, protecting subscribers’ interests, and related functions.”

Composition

• Led by a Chairperson and up to six members, including at least three whole-time

members, all appointed by the Central Government.

Powers & Functions (Section 14 – PFRDA Act)

• Regulating NPS schemes and approving their terms, conditions, and investment
norms.

• Registering, renewing, suspending, and cancelling intermediaries.

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 • Ensuring subscriber funds are safe, cost-effective, and intermediary fees are
reasonable.

• Establishing grievance redress mechanisms and undertaking adjudication.

• Promoting professional organisations and financial research.

• Educating the public on pension and retirement planning.

• Standardising fund performance disclosures and data collection.

• Levying fees and conducting audits and inspections of intermediaries.

• Maintaining books of account and resolving regulatory disputes.

Civil Court Powers

PFRDA enjoys civil-court-like powers enabling it to:

• Retrieve and inspect documents and records.

• Summon and examine individuals under oath.

• Issue commissions for witness or evidence examination.

• Investigate and audit intermediaries.

Recent Updates & News

• New Chairperson Appointed: Sivasubramanian Ramann took over as PFRDA

Chair in June 2025, succeeding Deepak Mohanty.

• NPS Reforms 2025: Six key changes include:

o NPS Vatsalya: Pension scheme for minors

o Seamless payments via Bharat BillPay

o Improved partial withdrawals

o Option to return to old pension scheme for Indian Administrative Service

officers

o Faster pension disbursements

o Launch of Unified Pension Scheme (UPS)

• UPS Tax Parity: Tax benefits for NPS are extended to the newly introduced UPS.

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 • Record APY Uptake: Atal Pension Yojana (APY) enrolments have crossed 8 crore,
with 39 lakh new subscribers in FY 2025-26.

• Digital Transformation: PFRDA launched PFRDA CONNECT, a revamped,

accessible digital portal to boost stakeholder engagement.

Insurance Related Schemes in India:

1. Postal Life Insurance (PLI) & DARPAN App

• Postal Life Insurance (PLI), originally introduced in 1884, offers life insurance
predominantly to government employees, public-sector workers, university staff, and
professionals working in listed companies.

• Under various Gram schemes—e.g., Gram Suraksha, Gram Suvidha, Gram Santosh,
Gram Priya, Gram Sumangal, Yugal Suraksha, Bal Jiwan Bima—PLI is extended to
villagers, catering to rural needs.

• The DARPAN-PLI App (Digital Advancement of Rural Post Office for A New India)
facilitates:

o Premium collection for both PLI and RPLI at any Branch Post Office (BPO),
including rural areas.

o Online updates to policy data directly from handheld devices used by branch
postmasters.

• The latest version, DARPAN 2.0.5, launched in July 2024, introduces:

o Improved UI features (user switching, master data visibility)

o Functional fixes (BODA reporting, PLI transaction accuracy, eMO SMS

confirmations, PINCODE updates, Finacle integration, etc.)

2. Life Insurance Corporation of India (LIC)

Background

• Established in 1956, LIC was formed by nationalizing private life insurers under
the Life Insurance Corporation Act (1956), becoming India’s statutory life insurer.

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 • Headquartered in Mumbai, LIC’s name Yogakshema (which appears on its magazine)
means “well-being” in Sanskrit, drawn from the Rigveda. Its motto, Yogakshemam
Vahamyaham, translates to “I bear (provide) well-being.”

Key Programs

• Aam Aadmi Bima Yojana (AABY), 2007:

o Designed for BPL and marginally APL individuals in unorganized sectors (e.g.,
carpenters, cobblers).

o Covers:

▪ Death: ₹30,000

▪ Disability: ₹37,500–₹75,000

▪ Scholarship: ₹1,200/year for Class 9–12 and ITI

o Premium: ₹200/year (₹100 from government fund and ₹100 by the beneficiary
or state)

• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) & Pradhan Mantri
Suraksha Bima Yojana (PMSBY), 2015:

o PMJJBY (Life Insurance):

▪ Age eligibility: 18–50 years

▪ Premium: ₹436/year

▪ Benefit: ₹2 lakh on death

o PMSBY (Accident Insurance):

▪ Age eligibility: 18–70 years

▪ Premium: ₹20/year

▪ Benefits: ₹2 lakh for accidental death; up to ₹2 lakh for disability

depending on severity

Recent Developments

• Strategic Investment Shift:

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 o In Q1 2025, LIC undertook a ₹15 lakh crore equity portfolio overhaul: trimming
positions in 81 companies, reducing exposure to retail stocks like Suzlon and
Vedanta, and increasing holdings in PSU defence, technology, and financial
services.

• Upcoming Divestment:

o The government plans to offer a 2.5%–3% stake in LIC via Offer for Sale
(OFS), potentially raising ₹14,000–₹17,000 crore.

o LIC’s share price dropped ~3% following this report.

o This forms part of the broader target to gradually divest 6.5% over the next 24
months, helping meet SEBI's public float requirement of 10% by May 2027.

• Regulatory Strategy:

o LIC’s leadership, including CEO R. Doraiswamy, maintains a neutral stance

toward composite licenses (covering life, general, and health insurance),
preferring to focus on core life insurance competencies.

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 ACCOUNTING PRINCIPLES
CHAPTER 1. INTRODUCTION TO ACCOUNTING

In 1941, The American Institute of Certified Public Accountants (AICPA) had defined
accounting as the art of recording, classifying, and summarising in a significant manner
and in terms of money, transactions and events which are, in part at least, of financial
character, and interpreting the results thereof’.

Objectives of Accounting

1) Providing Information to the Users for Rational Decision-making

2) Systematic Recording of Transactions
3) Ascertainment of Results of Transactions
4) Ascertain the Financial Position of Business
5) To Know the Solvency Position

Accounting Cycle

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Branches of Accounting

1) Financial accounting : The purpose of this branch of accounting is to keep a record

of all financial transactions so that:
a) Profit earned or loss sustained by the business during an accounting period
can be worked out
b) Financial position of the business as at the end of the accounting period can
be ascertained
c) The financial information required by the management and other interested
parties can be provided
2) Cost Accounting : The purpose of cost accounting is to analyse the expenditure so
as to ascertain the cost of various products manufactured by the firm and fix the
prices. It also helps in controlling the costs and providing necessary costing
information to management for decision-making.
3) Management Accounting : The purpose of management accounting is to assist the
management in taking rational policy decisions and to evaluate the impact of its
decisons and actions.

Basis of Accounting

1) Cash basis : Under the cash basis of accounting, actual cash receipts and actual
cash payments are recorded. In this basis, revenue is recognised when cash is
received and expenses are recognised when cash is paid.
o E.g. (i) Any income received, (ii) Any expense paid. Such a method of
accounting is usually followed by professionals Chartered Accountant (CA)
and Not for Profit Organisations.
2) Accrual or Mercantile basis: Under accrual basis of accounting, the revenue
whether received or not, but has been earned or accrued during the accounting
period and expenses incurred whether paid or not are recorded. In other words,
revenue is recognised when it is earned or accrued and expenses are recognised
when these are incurred.
o E.g. (i) Any income earned whether received or not, (ii) Any expense incurred
whether paid or not.
3) Mixed or Hybrid basis: It is a combination of cash basis and accrual basis of
accounting. Under mixed basis of accounting, both cash basis and accrual basis are
followed. Revenues and assets are generally recorded on cash basis whereas
expenses are generally taken on accrual basis. The laws in India prohibits the use
of this method.

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Qualitative characteristics of accounting information

a) Reliability of the Accounting Information: It is required to form judgements about

the earning potential and financial position of a business firm.
b) Relevance of the Accounting Information : The accounting information related by
the books of accounts and financial reports must be relevant.
c) Understandability of the Accounting Information: The benefits of information
may be increased by making it more understandable and hence useful to a wider
circle of users.
d) Comparability of the Accounting Information: In making decision, the
decisionmaker will make comparisons among alternatives, which is facilitated by
financial information.

Book Keeping

‘Book-keeping’ means recording of the business transactions in the books of accounts in a

systematic way. All the monetary transactions are recorded datewise for accurate business
results from such records at the end of accounting year.

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Features of Book-keeping:

1) It is the method of recording day to day business transactions.

2) Only financial transactions are recorded.
3) All records are prepared for a specific period which are useful for future references.
4) Records of transactions are based on rules and regulations.
5) It is an art of recording business transactions scientifically.

BASIC TERMINOLOGIES

• Account: It is a record of transactions related to a specific head or category. It reflects

not only the amounts involved but also their impact and the direction of the changes.
• Capital: This represents the funds invested by the owner(s) into the business, either
in the form of cash or other assets. It reflects the owner’s stake or interest in the
enterprise's assets.
• Drawings: This refers to the amount of money or goods taken out of the business by
the proprietor or partner for personal use.
• Liabilities: These represent the amounts the business payable to others.
o Internal Liabilities: Liabilities the business has towards its owners.
o External Liabilities: Liabilities the business has towards external parties or
outsiders.
• Assets: These are the resources or properties owned by a business.
o Non-Current Assets: These are long-term assets not intended for resale but
are held either for investment purposes or to support business operations.
o Current Assets: These are short-term assets expected to be converted into
cash within a year, such as inventory, receivables, or cash equivalents.
• Expenditure- can be defined as the amount spent for a long-term on an asset which
gives a long-term benefit like building expenditure, furniture expenditure, plant
expenditure etc.
o Revenue Expenditure: Expenditure for items which are used for the day-to-
day running expenses of the business. They are normally used up in less than
one accounting period and therefore, only temporarily increases the profit-
making capacity of the business. It appears in the Trading and Profit and Loss
Accounts as a reduction to profits.
▪ Ex: Goods bought for resale, all running expenses such as rent, interest,
etc. decoration to premises, depreciation.

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 o Capital Expenditure: Expenditure on assets which last for a long time and
permanently Increase the profit-making capacity of the business. It appears
in the Balance Sheet as an increase in the value of assets.
▪ Examples: Purchase of land, premises, vehicles, office equipment,
extension to premises; renovation to premises, legal fees involved in
purchase of fixed assets.

Expenses vs. Expenditures:

• Expenses are costs incurred to generate revenue during a specific period.

• Expenditures refer to the costs spent on acquiring or enhancing fixed assets of the
organization.
o Prepaid Expense: An expense paid in advance, the benefit of which will be
received in future periods.
o Outstanding Expense: An expense that has been incurred but remains
unpaid at the end of the period.

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 o Deferred Revenue Expenditure: It is an expenditure which is revenue in
nature and incurred during an accounting period, but its benefits are to be
derived in multiple future accounting periods.
• Preliminary Expenses: The expenses incurred when a company is formed and before
the start of any business operations are termed as preliminary expenses, they are a
good example of fictitious assets which are written off every year from the profits earned
by the business.
o Examples of such expenses incurred before business incorporation are; Legal
cost, Professional fees, Stamp duty, Printing fees, etc.
o
• Trade Receivables: This represents the amount due to the business from customers
for goods sold or services rendered on credit during normal operations. It includes both
debtors (individuals or entities who owe money for credit sales) and bills receivable.
Trade receivables are considered assets and are shown as sundry debtors on the asset
side of the balance sheet.
• Trade Payables: The amount a business owes for goods or services purchased on credit
in the normal course of operations. It includes creditors and bills payable, collectively
shown as sundry creditors on the liability side of the balance sheet.

Income vs. Profit vs. Revenue:

• Income: The net profit earned during a specific period after deducting all expenses.
• Profit: The financial gain resulting from the business’s core operational activities.
• Revenue: The total amount earned or receivable from the enterprise’s operating
activities, such as sales or services.

SYSTEM OF ACCOUNTING

Single Entry System

• This system is also known as pure entry system

Double Entry System

• This is the more traditional and conventional system for recording transactions in
financial accounting. This is a scientific method which has some rules and principles
must be followed.

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 CHAPTER 2. ACCOUNTING CONCEPTS
Entity Concept Business is separate from its owner.
Effects:
• Owner’s Capital is shown as a Liability in the
Business.
• Amount taken by Owner from business is recorded
as Drawings.
• Owner’s expenses are not recorded in the books of
business and if
payment is made from business, it is recorded as
Drawings.
• Proprietor cannot use the bank account of business
for his personal transactions.
Money Measurement Only those transactions, which can be measured in terms
Concept of money, are recorded.
Effects:
• Employees are not recorded as an Asset in the
Balance Sheet.
• Inherently generated goodwill is not recorded in the
books.
• Qualitative information is not recorded in the books
of account.
Periodicity According to this concept accounts should be prepared
Concept after every period & not at the end of the life of the entity.
Usually this period is one calendar year. In India we
follow from 1st April of a year to 31st March of the
immediately following year.
Effects:
• Adjustment of Prepaid and outstanding is done at
the end of the period. (Matching Principle)
Accrual Concept Accrual means recognition of revenue and costs as they
are earned or incurred and not as money is received or
paid. Expenses accrue when
benefit is received and income is accrued when benefit is
given.
Effects:

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 • Advance money received is not treated as a sale.
Matching In this concept, all expenses matched with the revenue of
Concept that period should only be taken into consideration. This
concept considers the occurrence of expenses and income
and do not concentrate on actual inflow or outflow of
cash.
Effects:
• Adjustment of Prepaid and outstanding is done at
the end of the period.
Going Concern The financial statements are normally prepared on the
Concept assumption that an enterprise is a going concern and will
(indefinite life) continue in operation for the
foreseeable future. Hence, it is assumed that the
enterprise has neither the intention nor the need to
liquidate or curtail materially the scale of its
operations.
Effects:
• That the assets are classified as current assets and
fixed assets
• The liabilities are classified as short-term liabilities
and long-term liabilities.
Cost Concept By this concept, the value of an asset is to be determined
on the basis of historical cost, in other words, acquisition
cost. Hence, All the fixed assets
are recorded at Historical Cost only and market value of
fixed assets is
ignored.
Conservatism Conservatism states that the accountant should not
Concept anticipate income and should provide for all possible
losses. When there are many alternative
values of an asset, an accountant should choose the
method which leads o the lesser value.
Effects:
• Provision for doubtful debts is created at the end of
the year.
• Stock is valued at Cost or NRV, Whichever is less.

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Materiality According to materiality principle, all the items having
Concept significant economic effect on the business of the
(Exception to enterprise should be disclosed in the financial statements
Full disclosure and any insignificant item which will only increase the
concept) work of the accountant but will not be relevant to the
users’ need should not be disclosed in the financial
statements.
Effects:
• Assets with low value like calculators, books, tools, etc
are written off in one year instead of capitalizing the
same.
• Omission of paisa and showing the round figure in the
financial statements.
Consistency In order to achieve comparability of the financial
Concept statements of an enterprise through time, the accounting
policies are followed consistently
from one period to another. A change in an accounting
policy is made only in certain exceptional circumstances.
An enterprise should change its accounting policy in any
of the following circumstances only:
• To bring the books of accounts in accordance with the
issued Accounting Standards.
• To compliance with the provision of law.
• When under changed circumstances it is felt that new
method will reflect more true and fair picture in the
financial statement.
Dual Aspect Every Transaction has two effects: Debit and Credit. Both
Concept are opposite and equal also known as Double Entry
System. Accounting equation has been derived on the
basis of dual aspect concept as under:
Assets = Liabilities + Equity (Balance Sheet Equation)
Net Profit = Income – Expenses (Profit & Loss
Equation)

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 AUDITING
CHAPTER 1. AUDITING

The term audit is derived from the Latin term ‘audire,’ which means to hear.

An audit is an "independent examination of financial information of any entity, whether

profit oriented or not, irrespective of its size or legal form when such an examination is
conducted with a view to express an opinion thereon.”

Features of Auditing

a. Audit is a systematic and scientific examination of the books of accounts of a

business
b. Audit is undertaken by an independent person or body of persons who are duly
qualified for the job.
c. c Audit is a verification of the results shown by the profit and loss account and the
state of affairs as shown by the balance sheet.
d. Audit is a critical review of the system of accounting and internal control.
e. Audit is done with the help of vouchers, documents, information and explanations
received from the authorities.

Objectives of Auditing

a. Primary objective – as per Section 227 of the Companies Act 1956, the primary duty
(objective) of the auditor is to report to the owners whether the balance sheet gives a true
and fair view of the Company’s state of affairs and the profit and loss A/c gives a correct
figure of profit of loss for the financial year.

b. Secondary objective – it is also called the incidental objective as it is incidental to the

satisfaction of the main objective. The incidental objective of auditing are:

i. Detection and prevention of Frauds

ii. Detection and prevention of Errors.

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Types of Errors

Types of audit

Based on ownership: On the basis of ownership audit can be:-

1. Audit of Proprietorship: In case of proprietary concerns, the owner himself takes the
decision to get the accounts audited. Sole trader will decide about the scope of audit and
appointment of auditor. The auditing work will depend upon the agreement of audit and
the specific instructions given by the proprietor.

2. Audit of Partnership: To avoid any misunderstanding and doubt, partnership audits

their accounts. Partnership deed on mutual agreement between the partners may provide
for audit of financial statements. Auditor is appointed by the mutual consent of all the

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partners. Rights, duties and liabilities of auditor are defined in the mutual agreement and
can be modified by the partners.

3. Audit of Companies: Under companies Act, audit of accounts of companies in India is

compulsory. Chartered accountant who is professionally qualified is required for the audit
of accounts of companies. Companies Act 1913 for the first time made it compulsory for
joint stock companies to get their accounts audited from a qualified accountant. A number
of amendments have been made in companies Act, 1956 and 2013 regarding appointment,
duties, qualification, power and liabilities of a qualified auditor.

4. Audit of Trusts: The beneficiaries of the trusts may not have access and knowledge of
accounts of the trust. The trustees are appointed to manage and look after the property
and business of the trust. Accounts of the trust are maintained as per the conditions and
terms of the trust deed. The income of the trust is distributed to the beneficiaries. There
are more chances of frauds and mis-appropriation of incomes. In the trust deed as well as
in the Public Trust Act which provide for compulsory audit of the accounts of the trust by
a qualified auditor. The audited accounts of the trust ensure true and fair view of accounts
of the trust.

5. Audit of Accounts of Co-operative Societies: Co-operative societies are governed by

the Co-operative Societies Act, 1912, though some states have amended it to suit local
needs. The Companies Act does not apply to these societies. An auditor must be well-versed
with the specific act applicable to the society, study its by-laws, and ensure any
amendments are registered with the Registrar. The Registrar is responsible for auditing, or
appointing someone to audit, the society’s accounts annually.

6. Government Audit: Audit of government offices and departments is covered under this
heading. A separate department is maintained by government of India known as Accounts
and Audit Department. This department is headed by the Comptroller and Auditor General
of India. This department works only for the government offices and departments. This
department cannot undertake audit of non-government concerns. Its working is strictly
according to government rules and regulations.

Based on Time: On the basis of time the audit can be of following types:

1. Interim Audit: When an audit is conducted between two annual audits, such audit is
known as Interim audit. It may involve complete checking of accounts for a part of the
year. Sometimes it is conducted to enable the board of directors to declare an Interim
dividend. It may also be for the purpose of dealing with interim figures of sales.

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2. Continuous Audit: The Continuous Audit is conducted throughout the year or at the
regular short intervals of time.

“A continuous audit involves a detailed examination of all the transactions by the auditor
attending at regular intervals say weekly, fortnightly or monthly, during the whole period
of trading.” - T.R. Batliboi

Based on Objectives: On the basis of objectives the audit can be of following types:

1. Internal Audit: It implies the audit of accounts by the staff of the business. Internal
audit is an appraisal activity within an organization for the review of the accounting,
financial and other operations as basis for protective and constructive service to the
management. It is a type of control which functions by measuring and evaluating the
effectiveness of other types of control. It deals primarily with accounting and financial
matters but it may also properly deal with matters of operating nature.

2. Cost Audit: Cost Audit is the verification of the correctness of cost accounts and
adherence to the cost accounting plans. Cost Audit is the detailed checking of costing
system, techniques and accounts to verifying correctness and to ensure adherence to the
objectives of cost accounting.

3. Secretarial Audit: Secretarial Audit is concerned with verification compliance by the

company of various provisions o Companies Act and other relevant laws. Secretarial audit
report includes

a. Whether the books are maintained as per companies act, 2013.

b. Whether necessary approvals as required from central Government, Company law board
or other authorities were obtained.

4. Independent Audit: Is conducted by the independent qualified auditor. The purpose of

independent audit is to see whether financial statements give true and fair view of financial
position and profits. Mainly it is for safeguarding the interest of owners, shareholders and
other parties who do not have knowledge of day-to-day operations of organization.

5. Tax Audit: Now-a-days tax audit has become very important to ascertain the accuracy
of tax related documents. Tax audit mostly covers income returns, invoices, debit and
credit notes and various current and fixed assets. Tax audit is an innovation of 21st
century. It has added one more chapter to the practice of auditing. Tax audit ensures the
validity and credibility of tax related documents.

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