EMPLOYEE PROVIDENT FUND ACT 1952

Essentials

CONTENTS• INTRODUCTION• SCOPE & EXTENT• APPLICABILITY / ELIGIBLITY• INTERESTS• INVESTMENT PATTERN FOR A PF TRUST• WITHDRAWL OF PF• SETTLEMENTS• EXEMPTION OF TDS ON SETTLEMENT• FORMS & RETURSN• BENEFITS• CONCLUSION

INTRODUCTIONEmployee Provident Fund (EPF) is one of the main platforms of savings in India for nearly all people working in Government, Public or Private sector Organizations. It is implemented by the Employees Provident Fund Organization(EPFO) of India.

It is a mandatory, tax-qualified, defined, contribution retiral benefit plan wherein equal contribution at the specified rate ismade by the employer and the employee andthe same is payable in lump sum on retirement.

SCOPE & EXTENT• Employees’ Provident Funds Scheme, 1952• Employees’ Deposit-Linked Insurance Scheme,

1976 (EDLI) and• Employees’ Pension Scheme, 1995 (EPS)

(Earlier the Employees’ Family Pension Scheme, 1971)

WHO IS APPLICABLE FOR EMPLOYEE PROVIDENT FUND ?

• The employee provident fund act 1952 implies to the whole of India except the state of Jammu & kashmir (section 2).This act implies (section 3) to:

• Every establishment which is a factory engaged in any industry specified in schedule I & in which 20 or more persons employed;

• Any establishment employing 20 or more persons of such establishments which central government may, by notification in the official gazette specify.

• NGO’S• Considering the operations of

charitable institutions these includes the following:

• Educational, scientific research & training institute ;

• Establishment known as hospitals;

• Establishment rendering expert services;

• Establishments engaged in poultry farming

• Establishment engaged in cattle feed industry;

WHO IS ELIGIBLE FOR EMPLOYEE PROVIDENT FUND?• FOR NEW ENTRANTS

• An employee is eligible for membership from the day he joins the company who has enrolled for EPF Scheme

• If an Employer has equal to or more than 20 employees, it is mandatory for him or to join the Employee Provident Fund Scheme.

• If the employee’s emoluments exceed Rs. 6,500/- per month, he has the option to join the Scheme(s)  with the consent of employer.

• Declare previous employment details, if any, in  Form No. 11  to the employer.

• On becoming a member of the Schemes file details in Form No. 2 ( family particulars/ nominations) through the employer.

• Rate of contribution payable by a member shall be @ 12% of his emoluments.

• A member can contribute statutorily over and above the prescribed rate.

• FOR EXISTING ENTRANTS• Enrolment:• Any change in the family status,

such as, –• marriage of the member.• additions / deletion in the family.• Legal adoption of the children.• Change of nominee, is to be filed

in Form No. 2 through the employer.

• In the event the member is holding a Scheme Certificate (under EPS, 95), he should surrender the same to the concerned EPFO office, through his employer.

• A member is entitled to various benefits & facilities such as withdrawals, advances, pensions, death insurance etc.

WHAT IS THE EPF INTEREST RATE?

The EPF interest rate of India is decided by the central government with the consultation of Central Board of trustees. In the past several decades, the interest rate has ranged from 8-12 % of the balances maintained in the fund.  The EPF interest rate notification is available on the official website of EPF India on an annual basis. The same is communicated through major dailies in all cities

HOW MUCH ONE CAN SAVE BY INVESTING IN EPF?Let’s say Swayam starts with a basic salary of Rs. 20,000. Every year, on an average, he gets a 5% increment. He started at 25 years and worked till 60 years so his working life is, 35 years. He contributes 12% of his basic salary towards PF which is matched equally by one’s company, (EPF contribution is 3.67%, EPS 8.67%). In this case, over the course of 35 years of his working life, his  total contribution is Rs. 26.01 Lakhs. Of course, his company makes a contribution of Rs. 7.955 Lakhs, total contribution of Rs 33.967 lakh. And this amount grows into – Rs. 1.38 Crores at the time of his retirement.

HOW IS IT CALCULATED ?At the beginning of each year there would be opening balance, the amount accumulated till then. Contribution is made monthly but interest is calculated yearly. On gets interest on opening balance and monthly contribution. So for next year the new opening balance would be: old opening balance + contribution throughout the year + interest on the (old opening balance + contribution)

HOW WOULD I KNOW THE AMOUNT OF ACCUMULATION IN MY PF ACCOUNT ?PF office sends an annual statement through the employer which gives details about the PF accumulations. The statement contains details like, Opening balance, amount contributed during the year, withdrawal during the year, interest earned and the closing balance in the PF account. This statement is sent by the PF department on completion of the financial year.

CLARIFICATION ABOUT CONTRIBUTION • AFTER REVISION IN WAGE CELLING FROM

Rs.5000 to Rs.6500 w.e.f. 1-6-2001 PER MONTH THE GOVERNMENT CONTINUE TO CONTRIBUTE 1.16% UPTO THE ACTUAL WAGE OF MAXIMUM Rs.6500 PER MONTH TOWARDS EMPLOYEES’ PENSION SCHEME. THE EMPLOYER’S SHARE IN THE PENSION SCHEME WILL BE Rs.541 w.e.f. 1-6-2001.

•• UNDER EMPLOYEES’ DEPOSIT-

LINKED INSURANCE SCHEME THE CONTRIBUTION @ 0.50% IS REQUIRED TO BE PAID UPTO A MAXIMUM LIMIT OF Rs.6500. THE EMPLOYER WILL PAY ADMINISTRATIVE CHARGE @ 0.01% ON MAXIMUM LIMIT OF Rs.6500.

•• THE EMPLOYER ALSO WILL PAY

ADMINISTRATIVE CHARGES @ 0.01% ON MAXIMUM LIMIT OF Rs.6500 WHEREAS AN EXEMPTED ESTABLISHMENT WILL PAY INSPECTION CHARGES @ 0.005% ON THE TOTAL WAGES PAID.

• NOTES• THE ABOVE CLARIFICATION IS

GIVEN BY TAKING WAGES UPTO A MAXIMUM OF Rs.6500 TOWARDS WAGE (BASIC+DA).

• SINCE AN EXCLUDED EMPLOYEE i.e. DRAWING WAGES MORE THAN Rs.6500 CAN ALSO BECOME MEMBER OF THE FUND AND THE SCHEMES ON JOINT REQUEST AND IF, FOR INSTANCE, SUCH AN EMPLOYEE IS GETTING Rs.10,000 PER MONTH, HIS SHARE TOWARDS PROVINDENT FUNDCONTRIBUTION WILL BE Rs.1200 e.g. 12% AND EMPLOYER’S SHARE TOWARDS PROVIDENT FUND CONTRIBUTION WILL BE Rs.659 AND Rs.541 TOWARDS EMPLOYEES’ PENSION FUND.

PAYMENT OF CONTRIBUTION

• THE EMPLOYER SHALL PAY THE CONTRIBUTION PAYBLE TO THE EMPLOYEES PROVIDENT FUND, EMPLOYEES DEPOSITE LINKED INSURANCE, AND EMPLOYEES PENSION FUND IN RESPECT OF THE MEMBER OF THE EMPLOYEES PENSION FUND BY HIM DIRECTLY BY OR THROUGH A CONTRACTOR.

• IT SHALL BE THE RESPONSIBILITY OF THE PRINCIPAL EMPLOYER TO PAY THE CONTRIBUTIONS PAYBLE TO THE EPF, EDLI AND EPSBY HIM SELF IN RESPECT OF THE EMPLOYEES DIRECTLY EMPLOYED BY HIM AND ALSO IN RESPECT OF THE EMPLOYEES EMPLOYED BY OR THROUGH A CONTRACTOR.

• A/c – 1 EPF EMPLOYERS 12% + EMPLOYEES 3.67% = 15.67 %

• A/c – 2 EPF ADMIN CHARGES 1.10%

• A/c – 10 EPS EMPLOYEES 8.33 %

• A/c – 21 EDLI 0.50 %• A/c – 22 EDLI ADMIN

CHARGES 0.01%

• TOTAL = 25.61%

WITHDRAWL OF EMPLOYEE PROVIDENT FUND 1952

WITHDRAWL BEFORE RETIREMENT

• You can withdraw up to 90% of the amount in you EPF account after you attain the age of 54 years, or within one year before actual retirement on superannuation whichever is later. Claim application in form 19 has to be submitted to the concerned Provident Fund Office.

• For other cases such as• Ø Shifting of Jobs• At such times, the PF balance could be

transferred from one employer to another. The existing balance would continue to stay. With fresh contributions made by the new employer.

•   • Ø Quitting of Job• PF could be withdrawn, if you quit your job

and provide a declaration that you do not intend to work for the next six month.

WITHDRAWL AFTER RETIREMENT

• You can withdraw full amount in the fund on retirement from service after 55 years of age. You can also withdraw the full amount due to any of the following occurrences:

•   1.    If you have not attained the age of 55 year at the time of termination of service. 2.    If you retired on account of permanent and total bodily or mental disablement 3.    If you migrated from India for permanent settlement abroad or for taking employment abroad. 4.    In the case of mass or individual retrenchment.

SETTLEMENT OF EMPLOYEE PROVIDENT FUND CLAIM

IMMEDIATE SETTLEMENT WITHOUT WAITING PERIOD OF TWO MONTH

SETTLEMENT ONLY AFTER A WAITNG PERIOD OF TWO MONTHS

69(1)(a)Retirement after attaining 58yrs of age. 69(1)(e)(i)Transfer of a non retrenched employee from a closed establishment to uncovered establishment.

69(1)(b)Retirement on a/c of total & permanent incapacity due to bodily or mental infirmity.

69(1)(e)(ii)Transfer of an employee from a covered establishment to an un-covered establishment under the same employer.

69(1)(d)Termination of service on retrenchment. 69(2)Other cases viz. Resignation, Leaving Service, etc.

69(1)(dd) Termination on V.R.S NOTE: For female members leaving service for the purpose of getting married; waiting period not applicable.

69(1)(c) Migration from India for permanent settlement abroad or taking employment abroad.

69(1)(e)(iii)Members discharged & retrenchment compensation paid under I.D Act 1947.

EXEMPTIONSHead Statutory PF Recognized PF UnRecognised PF

Employers contribution to PF Exempt from tax Exempt up to 12% of salary (Basic +DA)

Exempt from tax

Deduction under sec 80C Available Available Not available

Interest credited on PF account Exempt from tax Exempt up to 9.5% Exempt from tax

Lump sum payment received at the time of retirement or termination of service

Exempt from tax Exempt from tax: Only employees share of contribution is exempt

a. If the employee has worked for at least 5 years with the employer

b. If the service is terminated on account of ill-health or by contraction or discontinuance of the employer’s business or any other reason beyond control of employeec. If the employee transfers the balance in his PF to his new PF a/c maintained by his new employer

FORMS OF PF• Form No. 2 --Nomination form• Form No. 11 –Declaration of previous employer

& PF and Pension amount• Form No. 13 –PF Transfer from previous

employer

RETURNS IN EMPLOYEE PROVIDENT FUND

• MONTHLY RETURNS• 12 A (Employees Strength and paid)• Form 5 - New Joining (Name, Father’s Name,

DOJ, DOB, Gender.• Form 10 – Left Employees (Name, Father’s

Name, DOJ, DOL, Reason.• COMBINED CHALLAN A/C – 1,2,10,21 & 22

• Note : Above all contribution count on Employees Basic Earnings.

• Nomination : Form – 2 (Revised)

• Nominee Change : Form – 8

• For Withdrawal : Form 19 (Green) & 10 c (White)

• Loan : Form – 31 after 7 Years

• ANNUAL RETURNS• 3 A : Employees

individual detail month wise (Period 1st April to 31st March)

• 6 A : All Employees combined detail month wise

ADVANCES FROM PF ACCUMULATION ?

• Purchase dwelling site

• Construction of a dwelling house•  • Completing construction of the house• Buy a dwelling house /Flat from Agency• Purchasing a newly constructed/old dwelling house or flat from an

individual • Purchasing house/flat from a promoter •  •  • Additional Loan -alterations/improvements •  •  • Further housing withdrawal •  • Repayment housing loan

NOMINATION • An employee may be allowed to make a nomination conferring on one or more persons the right

to receive the provident fund amount• If an employee nominates more than one person, he shall, in his nomination specify the amount or

share payable to each of the nominees.• Where an employee has a family at the time of making a nomination, the nomination shall be in

favour of one or more persons belonging to his family• Any nomination made by an employee in favour of a person not belonging to his family shall be

invalid.• If at the time of making a nomination the employee has no family, the nomination may be in

favour of any person or persons• A nomination made by an employee may, at any time, be modified by filing Form no. 2•  • g) Where the nomination is wholly or partly in favour of a minor, the Member may, appoint a

major person of his Family to be the guardian of the minor nominee Provided that where there is no major person in the Family, the Member may, at his discretion, appoint any other person to be a guardian of the minor nominee.

• “Family” means: -• For Provident Fund (PF): - • in the case of a male member, his wife, his children, whether married or unmarried, his dependent

parents and his deceased son’s widow and children;• In the case of a female member, her husband, her children, whether married or unmarried, her

dependent parents, her husband’s, dependent parents, her deceased sons’s widow and children;

PENALTY IN EMPLOYEE PROVIDENT FUND ACT 1952

• LESS THAN 2 MONTHS @17% p.a.• 2 MONTHS & ABOVE BUT LESS THAN UPTO 4

MONTHS @ 22% p.a.• 4 MONTHS & ABOVE BUT LESS THAN UPTO 6

MONTHS @ 27% p.a.• 6 MONTHS & ABOVE @ 37 % p.a.

PENAL PROVISION FOR EMPLOYEE PROVIDENT FUND

• LIABLE TO BE ARRESTED WITHOUT WARRANT BEING A COGNISABLE OFFENCE.

• DEFAULTS EMPLOYER IN PAYING CONTRIBUTIONS OR INSPECTION-ADMINISTRATIVE CHARGES ATTRACT IMPRISONMENT UPTO 3 YEARS AND FINES UPTO Rs.10,000 (Sec.14).

• FOR ANY RETROSPECTIVE APPLICATION, ALL DUES HAVE TO BE PAID BY EMPLOYER WITH DAMAGES UPTO 100% OF ARREARS.

BENEFITS OF EMPLOYEE PROVIDENT FUND ?

• EMPLOYEES COVERED ENJOY A BENEFIT OF SOCIAL SECURITY IN THE FORM OF AN ATTACHABLE AND UNWITHDRAWABLE (EXCEPT I SEVERLY RESTRICTED CIRCUMSTANCES LIKE BUYING HOUSE, MARRIAGE, EDUCATION etc.). FINANCIAL NEST EGG TO WHICH EMPLOYEES AND EMPLOYERS CONTRIBUTE EQUALLY THROUGHOUT THE COVERED PERSONS EMPLOYMENT.

• THIS SUM IS PAYBLE NORMALLY ON RETIREMENT OR DEATH. OTHER BENEFITS INCLUDE EMPLOYEES PENSION SCHEME AND EMPLOYEES DEPOSITE LINKED INSURANCE SCHEME.

CONCLUSIONS• Contribution made to EPF and PPF gets deduction

under Section 80C and the interest earned is tax free. That is both works under EEE (Exempt, Exempt and Exempt) tax regime. However, PF is better than PPF in two aspects -

• In the case of PF, the employer also contributes to the fund. There is no such contribution in case of PPF.The rate of interest on PF is also marginally higher (currently 8.50%) than interest on PPF (8%).