What is the law for employees’ Provident Fund contributions in India

FAQ

Employees Provident Fund

Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the “Act”) is a social welfare legislation which extends to whole of India except the state of Jammu and Kashmir. At present, the Act and the Schemes framed there under provide for three types of benefits:

  • Contributory Provident Fund.
  • Pensionary benefits to the employees / family members.
  • Insurance cover to the members of the Provident Fund.

The main intent of the Act was to safeguard the interest and welfare of the employees by institution of the compulsory contributory Provident Fund to the employees to which both employer and the employee shall contribute the prescribed percentage of wages.

The Act and the Schemes framed are administered by –

  • Central Board of Trustees; and
  • Employees Provident Fund consisting of representative of Government, Employees and Employer.

APPLICABILITY

The provisions of the Act are applicable to the Establishment having 20 or more employees (permanent or contractual). Those establishments which do not have the prescribed number of employees but willing to register themselves to provide the benefits of Provident Fund to their employees can register voluntarily with the Regional Provident Fund Office.

This Act is applicable to all the establishments notified by the Central Government, employing more than 20 persons at one point of time in the establishment. It is pertinent to mention that if the Act becomes applicable to an establishment, it continues to remains under the ambit of its regulations even if the number of employees are reduced below the prescribed limit.

Prior to September 2014, the ceiling limit for contribution under the Employees Provident was earlier fixed to INR 6,500. However, by virtue of the amendment brought by Central Government which become effective from September 01, 2014, the ceiling limit increased from INR 6,500 to INR 15,000.

CONTRIBUTIONS

As per the existing norms, the contribution payable by the employer under the scheme shall be at the rate of 12 % of the basic wages, dearness allowance (including the cash value of any food concession) and retaining allowances, if any.

On the other hand, contribution payable by employee under the scheme shall be equal to contribution payable by the employer.

Provided that in respect of any employee to whom the scheme applies, the contribution payable by him, if he so desires, be an amount exceeding 12% of his basic wages, dearness allowance and retaining allowance (if any) subject to the condition that the employer shall not be under an obligation to pay contribution over and above his contribution payable under the scheme.

BENEFITS OF EMPLOYEE’s PROVIDENT SCHEME

  • INTEREST – An interest of 8.65% per annum on the amount of Provident Fund contribution.
  • TAX BENEFIT – The employer contribution to the Provident Fund is tax free and the contribution is tax deductible under section 80C of the Income Tax Act, 1961. Hence, the money invested in the Provident Fund, interest earned and money eventually withdrawn are tax free.

WITHDRAWAL OF PROVIDENT FUND AND PENSION FUND

The Act states that a member is eligible to apply for withdrawing his provident fund and pension fund only after 2 months from the date of resignation, provided that he / she is not employed during the said 2 months.

The withdrawals are exempt from tax if the concerned employee has rendered continuous service of more than 5 years. Otherwise, it would be taxable at the applicable slab rates.

ADVANCES FROM PF ACCOUNT

The members are also eligible to withdraw monies as advances from their PF Account for purposes including without limitation marriage, education, medical treatment and purchase of flat/house subject to the prescribed conditions as mentioned here below.

PENALTIES

Non- compliance with the provisions of the Act entails serious penalties to the employer. In case an employer defaults in furnishing any payment to be made by himself under this Act or enables any other person to avoid such payment, in such a case he shall be punishable with imprisonment for a term which may extend to one year, or with fine of five thousand rupees, or with both.

To know more about Labour Law in India, read below:

Labour Law in India

For more information please contact us at : info@ssrana.com