Among various employees’ benefit
schemes, Employees Provident Fund, Pension Fund and Deposit Linked Insurance
Schemes are recognized as effective tools for making adequate financial
provision to the employees in two contingencies Premature Death, while in
service and Compulsory Retirement. The Employees’ Provident Fund and Miscellaneous
Provisions Act, 1952 (hereinafter called the Act), which is umbrella
legislation and ensures social security measures for the betterment of
employees of the organized sector.
EMPLOYEES’
PROVIDENT FUND SCHEME
The Act provides that
every establishment, other than a co-operative society, which employs not less
than twenty persons, shall constitute an Employees’ Provident Fund to be
administered under an irrevocable trust, which is required to be governed by
the Central Board of Trustees appointed by the Government. In every State there
is a State Board of Trustees appointed by the Central Government to administer
the Provident Fund Schemes set up under their jurisdiction. The membership to
the Fund is granted to (i) All employees who are employed in the specified
establishments in India, or Employed by an employer whose principal place of
business is in India and (ii) directors who are bona fide whole time directors,
holding not more than 10% of the issued capital of the Company and (iii) in
case of directors who are whole time employees holding more than 10% shares, if
admitted as members, the contribution of employer and employees together cannot
exceed a specified limit.
Employees’ Provident
Fund Scheme takes care of the following needs of the members:
a.
Retirement
benefits
b.
Medical care
c.
Housing
d.
Family
Obligations
e.
Education of
children
f.
Financing of
insurance policies.
CONTRIBUTIONS
Both the employers and
employees have to contribute equally to the fund @12% of basic wages, dearness allowance,
retaining allowance, if any payable to the employees per month. The rate of
contribution is 10% with effect from 22.09.1997 in the following establishments:
Ø Any establishment with less than 20 employees (for
establishments covered prior to 22.09.1987)
Ø Any sick industrial company as defined in clause (o)
of sub-section (1) of section 3 of Sick Industrial Companies Act, 1985, and
which has been declared as such by the Board of Industrial and Financial
Reconstruction.
Ø Any establishment which has at the end of any
financial year, accumulated losses equal to or exceeding its entire net worth
and
Ø Any establishment engaged in manufacturing of Jute,
Breed, Coir, and Guar Gum
Ø Any establishment seeking tax relief under Income
Tax Act, 1961. Though Income Tax Act, 1961 does not specify any rate of
contribution. However, the maximum contribution eligible for relief of tax
under section 80C of the Act is 20% of salary or Rs. 10,000, whichever is less.
The salary for this purpose consist of basic salary and dearness allowance, if
the terms of employments so provide. It is also a condition that employer’s
contribution should not exceed the employee’s contribution.
INTEREST RATE
The Central Government
in consultation with the Central Board of Trustees fixes the rate of interest
during the month of March / April every year. The rate of interest so fixed by
the Central Government is credited to the members’ account on monthly running
balance with effect from the last day of the year. The rate of interest for
1998-99 was notified as 12%, for the year 1999-2000,it was 11%, for the year
2000-2001, it was notified as 10.25%. Employees’ Provident Fund Organization
(EPFO), on 15.09.2010, recommended that the interest rate for the year 2010-11
be increased from existing rate of 8.5% to 9%. The labour Ministry approved the
proposal of increase in the rate of interest which was stagnant since 2005.
Presently, the rate of interest with effect from 1.4.2011 is 9% p.a.
INVESTMENTS
The contributions paid
in to the Provident Fund account are to be invested in accordance with the
rules framed under the scheme, but subject to the provisions made under Rule 67
of the income tax Rules, 1962. Rule 67 of Income Tax Rules stipulates that
subject to certain conditions, the Provident Fund moneys be invested as under:
Ø 25% of the investible amount should be invested in
Central Government Securities as defined under section 2 of the Public Debt
Act, 1944, created and issued by any State Government and or units of Mutual
Funds which have been set up as dedicated funds for investment in Government
Securities and which have been approved by Securities Exchange Board of India.
Ø 15% of the investible amount should be invested in
any other negotiable securities, the principal whereof and interest whereof is
fully and unconditionally guaranteed by the Central Government or any State
Government except those covered under (iii) (a) below
Ø (a) 30% of investible amount should be invested in
bonds / securities of public financial institution or of public sector bank and
/ or
Ø (b) 30% of investible amount should be invested in
short duration (less than one year), Term Deposit Receipt (TDR) issued by
Public Sector Banks.
WITHDRAWALS
Two kinds of
withdrawals, viz. refundable and non-refundable withdrawals are permitted.
Refundable withdrawals are allowed for meeting out expenditure in respect of
sickness, marriage ceremonies, travel out of India and making good the damage caused
to property due to natural calamity. Non- Refundable withdrawals are granted
for investment purposes, viz. housing and insurance. An employee can withdraw
90% amount of P.F. at credit after attaining the age of 54 years or within one
year before actual retirement on superannuation, whichever is later.
CONDITIONS FOR FULL PAYMENT
Full payment to the
amount standing to the credit of employee is allowed, if he retires from
service after attaining the age of 55 years/superannuation, whichever is later.
However, Full payment is also allowed in the following circumstances:
Ø When member is terminated before attaining the age
of 55 years/superannuation, as the case may be;
Ø When a member is retired on account of permanent or
total disablement due to bodily or mental infirmity;
Ø When a member migrates from India for permanent
settlement abroad or for taking employment abroad; and when the employer
resorts to mass retrenchment.
CONDITION OF COMPLETION OF CONTINUOUS SERVICE OF TWO
MONTHS FOR MAKING WITHDRAWAL
Under the following contingencies,
a member is allowed to make withdrawals from the Fund, provided he has
completed continuous services of two months from the date on which the
application for withdrawal is made by the member concerned:
Ø Where the member of a closed establishment is
transferred to Provident Fund and Miscellaneous Provision Act, 1952;
Ø Where a member is discharged and is given
retrenchment compensation under Industrial Dispute Act, 1949.
NOMINATION
Every member has to
give details of himself and details of his family. A member, if , is having a
family, can nominate one or more members
of his family, to receive accumulated balance standing to the credit of the
member in case of his premature death. If the member is having no family, he
can nominate any person of his choice.
Family for the purpose
of the Act, means wife/husband, children, whether married or unmarried,
including legally adopted children and parents of the member.
A nominee can give a
valid discharge and the proceeds received by the nominee are free from all encumbrances
and would vest in the nominee after death of the member.
EXEMPTIONS
The Act provides the
following exemptions:
Section 17(1) (a)
grants exemption to an establishment which has covered its employees in a PF
Scheme, which is not less favourable than EPF Scheme, 1952. For Such exempted
establishment’s contributions are not less than those specified in Section 6 of
the Act.
a.
Section 17 (i)
(b) provides exemption to an establishment which gives to its covered employees
PF, Pension or Gratuity benefits which on the whole are not less beneficial
than those provided by the Act.
b.
Section 17(2) provided
exemption to a class of employees under paragraph 27A of the EPF Scheme, 1952
where establishment has provided such class of employees with provident fund,
gratuity or old age pension which are either separately or as a whole not less
beneficial than those provided under the Act and the Scheme, and
c.
Under paragraph
27 of the Scheme, individual employees are granted exemption, where the
employer provided them with PF, gratuity or old age pension which are not less
favorable than the benefits provided under the Act and the Scheme.
Source: Student Company
Secretary
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