2012-10-16 00:00:00LegalEnglishEmployee Provident Fund Scheme: Read more to learn about the laws & regulations of the provident fund under the Employees’ Provident Fund...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2017/05/Oct16th_Regulations-for-Employee-Provident-Fund1.jpghttps://quickbooks.intuit.com/in/resources/legal/employee-provident-fund-scheme-eligibility-exemptions-and-contributions/Employee Provident Fund Scheme: All You Need To Know

Employee Provident Fund Scheme: All You Need To Know

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What is Employee Provident Fund Scheme?

Employees Provident Fund and Miscellaneous Provisions Act, 1952 is a Social Security Act passed by the Government of India. It includes Social Security Schemes namely Provident Fund, Pension and Insurance to industrial employees.

Thus,

  • the provident fund advantages are provided under Employees Provident Fund Scheme, 1952,
  • pension benefits under Employees’ Pension Scheme 1995 and
  • insurance benefits under Employees’ Deposit Linked Insurance Scheme, 1976.

Further, a person making a contribution towards Employees’ Provident Fund Scheme automatically holds the right to receive pension and insurance benefits without making any further contribution.

Employee Provident Fund Scheme, 1952

Under this scheme, every employee is required to make a contribution towards the provident fund at the rate of 12% of the Basic Wages, Dearness Allowance and cash value of food concession.

Further, the employer also makes an equal amount of contribution as the employee towards the fund. Also, a member while contributing towards such a scheme is eligible for deduction u/s 80C of the Income Tax Act’ 1961.

Also, the sum so collected under the PF contributions of a particular member earns compound interest. This compound interest is calculated on the monthly run balances.

Employees’ Pension Scheme 1995

Under this scheme, the employee is entitled to a pension after a minimum of 10 years of service. The pension under this scheme becomes payable after the employee attains the age of 58 years. This is regardless of the fact whether he is still in service or superannuated.

Further, the pension is based on age, wage and service of an employee at the time of his leaving service.

Employees’ Deposit Linked Insurance Scheme, 1976

A member of Provident Fund is also a member of Employees Deposit Linked Insurance Scheme. In case of death of an employee, while in service, insurance benefit upto Rs.6.00,000/- is payable to the Nominee / family members.

Features of Employee Provident Fund

  • The purpose of this Act is to provide retirement and old age benefits such as Provident Fund, Superannuation Pension, Deposit Linked Insurance etc. with the intent to protect the interest of workers recruited in factories and other establishments.
  • Provident Fund is a mandatory saving by an employee during the years of his employment.
  • Further, the Provident Fund Act aids to provide terminal benefits in case of occurrence of accidents or mishaps or an unforeseen event. These include retirement, closure, retirement due to achieving the age of superannuation, voluntary retirement or retirement as a result of circumstances resulting in the inability of the workers or employees to work.
  • The benefits received under the Provident Fund act are utilized on retirement or termination of the service.

Other Important Features Of Provident Fund

  • EPF and also the Provident Fund of the exempted establishments is a Provident Fund acknowledged under Income Tax Act, 1961.
  • An employee is entitled to receive rebate on income tax applicable on his Provident Fund contributions. This is subject to a limit which is provided under the Income Tax Act.
  • In case the employer fails to make a contribution towards the Employee Provident Fund for a specific period, the outstanding dues may be recovered by the Regional Provident Fund Commissioners. This may be done via prosecution, attachment of bank account or property, arrest and detention of the employer etc.
  • If the employer seeks to recover the outstanding amount of contribution towards Employee Provident Fund from the employees’ wages, it would be taken as a criminal breach of trust. Such an act is punishable under section 406/409 IPC.
  • Payment of the Employees Provident Fund beyond the due date, that is the 15th of the succeeding month would be liable to the payment of interest and penal damages by the lawyer.
  • The contribution made towards the Employee Provident Fund can be withdrawn to a certain extent. This can be done for reasons such as illness, marriage, housing etc.
  • All the PF claims of a particular member need to be disposed of by the EPF offices within 30 days.
  • The Employees Provident Fund office intimates about the annual Employees Provident Fund balance to each employee. Annual accounts slips in Form 23 are now being provided online on the employer’s portal from the time online compliance has come into the scene. The members can also see their updated EPF passbooks online via the Universal Account Number (UAC) login.

What is EPFO?

Employees Provident Fund and Miscellaneous Provisions Act, 1952 is administered by the Employees Provident Fund Organization (EPFO). EPFO is a statutory organization that comes under the supervision of the Ministry of Labor Government of India.

Further, EPFO is governed by a Central Board of Trustees that consists of the representatives from employees, employers and central or state government.

Whom Does Employee Provident Fund Scheme Apply To? (Eligibility of EPF Scheme)

  • Employees Provident Fund and Miscellaneous Provisions Act, 1952 applies to all factories and establishments covered in the list of notified industries and the class of establishments in the Act. Further such establishments and factories should have a minimum of 20 employees working with them for the Act to be applicable.
  • However, the Central Government has the authority to make this Act applicable to any establishment and factory having less than 20 persons. This can be undertaken after providing a two month notice in the Official Gazette. The persons employed with the factories and establishments comprise of:
    • Regular employees
    • Casual Employees
    • Piece Rated Employees
    • Part time Employees
    • Temporary and Contract Employees
  • The Provident Fund Act becomes applicable to a particular factory or establishment from the date such a factory or establishment comes into existence or begins its business. These establishments do not include the ones mentioned as excluded establishments under section 16 of the Act. Furthermore, once applied to a particular establishment, the Act continues to apply even if the number of workers employed become less than 20 after the application of the Act.
  • Finally, the Employee Provident Fund Act also applies to the Cinema Theaters having 5 or more workers.

Voluntary Application of the EPF Act

There are certain category of establishments that can demand voluntary application of Employees Provident Fund and Miscellaneous Provisions Act, 1952. These include:

  • Establishments that do not employ 20 persons. This also includes contract workers.
  • And Establishments that employ 20 persons but do not come in the list of notified industries or class of establishments.

How Can A Factory Or An Establishment Get Exempted From EPF Act?

The employer can demand the exemption from the applicability of the Provident Fund Scheme or Pension Scheme or EDLI Scheme or all after the EPF Act applies to the establishment. This is possible only if the majority of the employees of such an establishment agree to such an exemption.

Further, the benefits extended by the private Provident Fund or The Pension Scheme should mandatorily be equal to or more than the ones provided by the statutory scheme. Furthermore, in order to seek exemption from the EDLI Scheme, the insurance benefits provided by the establishment to the employees should be more advantageous as against the statutory scheme.

Once the exemption is provided, the Board of Trustees so formulated by the employer is required to take care of all the matters relating to the Provident Fund. These include investment, maintenance of account and settlement of the Provident Fund Accounts etc. The establishments that get exempted from the EPF Act are called exempted establishments.

Such exempted establishments are required to support their own Provident Fund so identified by the Income Tax. Also, the rate and the way in which the interest is credited should not be less than the one provided to the members of the unexempted establishments.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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