Provident fund & miscellaneous provisions act 1952
This article gives you basic information and practical aspects of the Act. This article will help to solve majority of the minor doubts which arise while complying under the Act.
Labour Laws of India refers to laws regulating labour in India. The Constitution of India gives us series of fundamental labour rights in the constitution, viz equality at work, right to join and take actions in trade unions, decent working conditions, protection against exploitation, oppression and mismanagement, protection against sexual harassment, payment of minimum wages, payment if equal wages, post retirement security, medical benefits, health & safety at work etc.
The labour laws of our country are divided in to center and states. Some of the acts are state subject whereas remaining acts are central acts.
Whenever we hear of Provident Fund, the first scary thought which comes to our mind is this is something which is deducted from the salary which reduces the net take home salary.
However, Provident Fund deductions are not permanent deductions from your salaries. These deductions are your valuable savings which gives you returns at the time of withdrawal.
Even though some amount of your salary is deducted and deposited in your provident fund account, it is a kind of savings which will help you at the time of your retirement.
Provident Fund deductions not only helps you in saving your money but also gives insurance benefits to your family members after your death.
In this article, emphasis is given on basic knowledge about the Provident Fund Act, its practical aspects and its benefits.
The name of the Act itself gives you the intention behind formation of this act. “PROVIDENT” meaning “timely preparation for future” and “FUND” meaning “money saved or made available for a particular purpose”.
Hence, we can understand that, Provident Fund means we prepare for our future today by saving some of our hard-earned money.
THE ACT: –
This Act is called the Employees Provident Fund & Miscellaneous Provisions Act, 1952. It extends to whole of India. The Act is now applicable to the Union Territory of Jammu & Kashmir & Ladakh with effect from 1st November2019.
This act is a central act and applicable to all establishments fulfilling the applicability criteria.
This act applies to;
1. Every establishments / factory engaged in activities specified in Schedule I and in which twenty and more persons are employed.
2. An establishment to which this act applies shall continue to governed by this act notwithstanding that the number of persons employed therein at any time falls below twenty.
As per section 16 of the act, the act is not applicable establishment registered under Co-operative Societies Act 1912 or any other law for the time being in force in any state relating to co-operative societies, employing less than 50 persons and working without aid of power or
Any other establishment under control of Central or State Government and whose employees are entitled to provident fund benefits or old age pension in accordance with any scheme or rule framed by Central or State Government or
Any establishment set up by Central, State or Provincial act and whose employees are entitled to provident fund benefits or old age pension in accordance with any scheme or rule framed by Central or State Government or
1. Provident Fund Wages means Basic Salary plus Dearness Allowance
2. Employee means any person who is employed for wages for any kind of work who gets wages directly or indirectly by the employer and includes an apprentice, not being an apprentice engaged under the Apprentice Act 1961 or under the standing orders of the establishment.
3. Covered Employee (Member) means employee drawing BASIC salary (Basic + Dearness Allowance) less than Rs.15,000/- per month.
*as per Supreme Court Judgement dated 28th February 2019 in Civil Appeal No 6221 of 2011, special allowances paid to employees will attract PF contribution up to statutory basic limit of Rs.15000/- per month in other words whose basic salary plus dearness allowance is more than Rs.15000/- per month will not be impacted by this judgement.
As per the judgement, subject to maximum limit of Rs.15000/-, PF will be attracted on all components of salaries except the following,
– Annual Statutory Bonus
– Leave Encashment
– Production or incentive bonus when variable linked with productivity
– Service charges collected from customers and paid to employees
– Notice pay in lieu of termination
– One month wage u/s 32(2)(b) of Industrial Dispute Act
– Commission to be given on sales not to all employees
4. Exempt employee means employee drawing BASIC salary (Basic + Dearness Allowance) more than Rs.15,000/- per month.
5. Exempted establishment means an establishment in respect of which an exemption has been granted under section 17 from the operation of all or any of the provisions of any Scheme or the Insurance Scheme, as the case may be, whether such exemption has been granted to the establishment as such or to any person or class of persons employed therein
6. Factory means any premises including the precincts thereof in any part of which a manufacturing process is being carried out on or is ordinarily so carried on, whether with aid of power or without aid pf power.
7. Contribution means depositing the monthly deduction to the Provident Fund (PF) Account.
8. Employee contribution means deduction of 12% of the basic salary every month and depositing in his respective PF account
9. Employer contribution means depositing 12% of basic salary of employee by employer from his own to the employee PF account.
Practical implementation of the act: –
1. As read above, the act is applicable to all establishments employing 20 and more employees.
However, please be clear that, there is no wage criteria for applicability of this act. This act is applicable as soon as the head count reaches 20 employees irrespective of their salaries.
2. Employee means direct or indirect employee. Hence, not only the employees on your company roll are considered but also the employees who are appointed on contract or appointed through a contractor are also covered under the act.
3. Any employee who was previously the member of the act in the previous employment will automatically get covered under the act in the present establishment irrespective of his/her basic salary.
4. The employer with the consent of the employee has the option to cover the employee under the act even if the basic salary of the employee is beyond the prescribed limit, however subject to deduction limited to the applicable wages.
Example, an employee is drawing basic salary Rs.20,000/- can be covered under the act, however his monthly contributions will be deducted on Rs.15,000/- only.
This will always be a management discretion whether to cover the employees drawing basic salaries more than the prescribed limit or not.
Further, also there is no restriction to deduct contributions on the prescribed limit only. If the employee wants, he/she can ask the employer to deduct 12% on the entire basic salary even If it is above the prescribed limit of Rs.15,000/-. However again it will be a management discretion to deduct PF on entire basic as it will increase the cost of the employer also.
5. The due dates to deposit PF dues to EPFO is on or before 15th of every month.
Following are the heads of PF deductions:
1. Employee Contribution – 12% of basic salary (basic + dearness allowance)
2. Employer Contribution – 12% of basic salary (basic + dearness allowance)
3. Administration Charges – 0.5% of PF wages or Rs.500/- whichever higher
4. Inspection Charges – 0.5 % of Pension wages
Please note apart from point no.1 i.e. employee contribution, all other remaining charges are contributed by the employer.
Employer contribution is calculated per employee basis whereas administration and inspection charges are calculated on the entire PF wages of all the covered employees.
Note: The deductions mentioned above are as per the latest amendment of the act. The rates and wages amendments are mentioned below for easy reference.
Amendments in wages and rates of contributions :-
|PF Wages limit increased from Rs.6500/- to Rs.15000/-||01/09/2014|
|PF admin & EDLI charges revised from 1.10% and 0.01% to 0.85% & 0.01% subject to minimum Rs.500/- and Rs.200/-respectively.||01/01/2015|
|PF admin & inspection charges revised to 0.65% subject to minimum Rs.500/- and EDLI charges 0.01% waived off||01/04/2017|
|PF admin charges reduced from 0.65% to 0.50%||01/06/2018|
From the above table, we can understand that,
1. Wages limit to get under the PF act has been increase from Rs.6500/- to Rs.15000/- with effect from 1st September 2014. This has helped to cover more and more employees under the act thereby extending the benefits of this act to large number of employments of the country.
2. The administration and EDLI charges contributed by the employer were revised from 1.10% of PF wages and 0.01% of Pension wages to 0.85% of PF wages and 0.01 % of pension wages subject to minimum Rs.500/- and Rs.200/- respectively whichever is higher.
To make this point clearer, please note, if the administration charges of 0.85% on PF wages comes to below Rs.500/-, and EDLI contribution of 0.01% on pension wages comes to below Rs.200/- then the employer should contribute flat Rs.500/- & Rs.200/- as the case may be.
3. Again with effect from 1st April 2017, the admin charges were revised from 0.85% to 0.65% or Rs.500/- whichever higher. However, EDLI charges of 0.01% or Rs.200/- are completely waived off.
4. From 1st June 2018, admin charges are again reduced from O.65% or Rs.500/- whichever higher to 0.50% or Rs.500/- whichever higher
From the above amendments in rates of contribution. It is understood that the Government has reduced the burden from the employer to some extent. This will definitely motivate the employers to cover more employees under the act.
Online facilities to employees:
Under the ease of doing business, EPF organization has launched a separate portal of EPF eligible employees to avail various benefits under the act thereby reducing the burden on employers.
The employees can take the following benefits under the online facilities,
1. Activate Universal Account Number (UAN)
2. Check PF accumulation balance in PF Passbook
3. Update KYC details
4. File transfer claims
5. File withdrawal claims
6. Submit Nominee details
Major points to be considered under EPF:
1. As the EPF Act is applicable to both direct and indirect employees, it is the duty of principal employer to ensure the contractors comply under the act and if that is not the case, it is the duty of the principal employer to do the compliance of contractual employees under own EPFO code.
2. Obtain EPF Form 11 from exempted employee
3. Update KYC details of employees in EPF portal
4. Ensure employees activate their UAN and update nominee details
5. Organize orientation of new employees and make them understand various benefit under the Act
Benefits to employees under the act
1. ** The EPF contribution deducted from employees salaries along with the employer contribution can be withdrawn by the employees on retirement.
2. EPFO also pays interest at applicable rate at the time of withdrawals
3. In case of urgency, employee can avail facility of advance withdrawal while in service from his PF accumulations. There is no requirement to submit any document for the same.
4. Advance withdrawal can be taken for medical emergency, higher education, marriage, construction of house etc.
5. In case of death of member while on service, the nominee of the member are entitled for monthly pension from EPFO.
6. In case of death of employee, EPFO gives benefit up to Rupees Six Lakhs under Employees Deposit Linked Insurance Scheme subject to fulfillment of prescribed conditions.
7. Employee after attaining age of 58 years is eligible for monthly pension however the employee should have completed 10 years of continuing service.
** Provisions related to TDS on withdrawal from Employees Provident Fund Scheme, 1952 (FORM No. 19)
No TDS in respect of the following cases:-
– Transfer of PF from one account to another PF account.
– Termination of service due to Ill health of member /discontinuation of Business by employer/completion of project/other cause beyond the control of member.
– If employee withdraws PF after a period of five year.
– If PF payment is less than Rs. 50,000/- but the member has rendered service of less than 5 years.
– If employee withdraws amount more than or equal to Rs. 50,000/-, with service less than 5 years but submits Form 15G/15H along with their PAN
TDS will be deducted in respect of the following cases:
– If employee withdraws amount more than or equal to Rs. 50,000/-, with service less than 5 years, then
a) TDS will be deducted @ 10% if Form-15G/15H is not submitted provided PAN is submitted.
b) TDS will be deducted @ maximum marginal rate (i:e. 34.608%) if employee fails to submit PAN.
1. TDS is deductible at the time of payment.
2. TDS will be deducted under Section 192A of Income Tax Act, 1961.
3. Form 15H is for senior citizens (60 years & above) and Form 15G is for individuals having no taxable income. Form 15G & 15H are self declarations and may be accepted as such in duplicate.
4. Members must quote PAN in Form No.- 15G / 15H and in Form No. 19.
Voluntary registration under the act
Establishment having less than 20 employees can also obtain registration under the Act which is called as Voluntary Registration. Under voluntary registration all the employees become eligible for PF from commencement of their employment. Contribution rate under voluntary registration is 10%.
Employees deposit linked insurance (EDLI) scheme
Under this scheme insurance cover is given by EPFO to the nominee or legal heir of active member of EPFO who gets a lumpsum payment in case of death of the member during the service period.
There is no minimum service period for availing EDLI Benefits.
The claim amount under EDLI is 30 times the average monthly salary in preceding 12 months subject to maximum of Rs.6,00,000/- (Rupees Six Lakhs).
Disclaimer : The article is prepared on the basis of relevant provisions of the act and my practical knowledge of the subject. Care has been taken to produce the authentic and reliable information, however, the users are expected to refer the relevant existing provisions of the act. I therefore shall not be held responsible in any case for the consequences and outcome of use of the information.