The Employees’ Provident Fund Organisation (EPFO) issued a circular (No. E.III/10(122)/2024) dated October 7, 2024, addressing the use of reserves and surplus by exempted establishments’ Trusts to credit interest to beneficiaries at rates higher than those declared by the EPFO. It was observed that certain exempted establishments had proposed such actions either during or before surrendering their exemption status.
The EPFO clarified that such practices are illegal and violate Para 60 of the EPF Scheme and Section 17 of the Indian Trusts Act, which mandates impartiality in trust management. The circular highlighted that overdrawal of reserves is prohibited, and any interest credited must correspond to the fund’s earnings. Further, the use of surplus for distributing higher interest rates to select beneficiaries is deemed unjust enrichment, benefiting a few at the cost of others.
Upon surrendering or cancellation of an exemption, all accumulated funds, including undistributed interest, must be transferred to the Central Board of Trustees (CBT), EPFO, in accordance with Para 28(2) of the EPF Scheme. The instructions supersede previous circulars from 2010 and 2011, which are now withdrawn. Zonal and Regional Offices are required to ensure compliance with these guidelines and communicate them to all exempted establishments under their jurisdiction. Non-compliance will be highlighted during audits.
EMPLOYEES’ PROVIDENT FUND ORGANISATION
MINISTRY OF LABOUR & EMPLOYMENT, GOVERNMENT OF INDIA
Head Office
Bhavishya Nidhi Bhawan, 24, Bhikaiji Cama Place, New Delhi-120066
Website: www.epfindia.gov.in www.epfindia.nic.in
Circular No E.III/ 10(122)/ 2024/ Circular/ Exemption/5435 Dated:07 OCT 2024
To,
All Addl. Central Provident Fund Commissioner’s(Zones)
All Regional Provident Fund Commissioner’s/Officer-in-charge(Regions)
Subject: Regarding utilization of Reserves and Surplus for crediting interests to the existing Trust beneficiaries – regarding
Sir/ Madam,
With reference to the aforementioned subject, instances have come to the notice of H.0 wherein Exempted establishments have sought permission from Regional Offices to appropriate the balance lying in the Trusts Reserves and surplus by crediting interests to the existing Trust beneficiaries at a much higher rate than that declared by EPFO for its members. Such actions by the Exempted establishments have been proposed either during the time of Surrender of exemption or undertaken just prior to the initiation of surrender process.
The issue and its legal ramifications has been given a thoughtful consideration and the following maxims emerge out it.
i. An inflated surplus in the Balance Sheet of the Trust is indicative of non distribution of earnings of previous years amongst the incumbent beneficiaries proportionately. An obvious corollary to this is that the higher earnings in previous years should have been distributed as higher interest for the beneficiaries.
ii. Interest is to be credited in the beneficiary accounts on monthly running balance basis with effect from the last day in each year; thus no interest is allowed to be credited for the broken periods of a year.
iii. The rate of interest allowed to the beneficiaries of the Exempted Trusts in any particular should be commensurate with the earnings of the Fund.
iv. Overdrawal of reserves and surplus is not permitted at any point of time.
A perusal of the aforementioned legal maxims is enough to bring out the manifest illegality inherent in any such actions undertaken by the Exempted establishments. It is also apparent that such accumulations in the reserve fund have come up in course of time by utilizing the accretions from several past and present beneficiaries in contravention of Para 60 of the Scheme and any sanction allowing them to distribute it amongst the incumbent beneficiaries would amount to sanctioning an unjust enrichment of a few at the expense of others while being also supportive of a violation by the Trustees of Section 17 of the Indian Trusts Act which enjoins them to act impartially. Thus for the said reasons such requests from exempted establishments can’t be acceded to and any instance of such action shall be brought to light during the compliance audit exercise, as delineated in Para6.B (V) of the SOP on Regulation and Management of Exempted establishments. It is also, imperative that the total accumulations of the Trust Fund including the balance of undistributed interest on investment is transferred to the CBT, EPFO upon cancellation of Exemption or surrender of exemption, in line with the explanation to Para 28(2) of the Scheme.
The aforementioned instructions are in supersession of all existing circulars on the issue and more specifically the following two circulars which are hereby withdrawn with immediate effect.
i. No. c-Ex/ misc/ comp.Audit/ 2009/ 43789 dated 20.10.2010.
ii. No. c-Ex/ misc/ comp.Audit/ 2009/ 104919 dated 17.03.2011.
All Z.O’s and R.O’s are to take note and regulate such cases accordingly. Further the aforesaid instructions should be brought to the notice of all exempted
establishments under their jurisdiction by a communication from the Zonal Offices.
(This issues with the approval of ACC(HQ) Exemption)
Your faithfully
(Saurabh Suman Prasad)
R. P.F.C-I (Exemption; V-I)
