What is Employee
Provident Fund and miscellaneous Act, 1952?
The Employees’ Provident
Fund scheme was introduced in 1952 and act that governs it – the Employees’
Provident Fund and Miscellaneous Act, 1952, is administered by the Central
Board of Trustees.
The
Employees’ Provident Fund (EPF) Scheme
The administration of the Act is carried out by the Central
Board of Trustees which comprises representatives of three parties viz. the
government, employers and employees. The Board is assisted by the Employees’
Provident Fund organization (EPFO) which falls under the purview of the
Government through the Ministry of labor and Employment. Employees' Provident
Fund (EPF) is a government scheme that is managed by the Employees' Provident
Fund Organisation (EPFO). Companies with minimum 20 employees have to register
with the EPFO as per the law. Employees and employers contribute to the EPF
corpus on a monthly basis. The EPF scheme aims to provide financial security to
the employees after their retirement. It also encourages employees to save
money every month so that the accumulated savings can come in handy during
unemployment or post retirement.
The aim of the Employee
Provident Fund(EPF) scheme is to
promote retirement savings for employees across India. The Employees’ Provident
Fund (EPF) is a corpus of funds built through regular, monthly, contributions
made by an employee and his/her employer. The amount contributed to the fund is
based on a fixed rate. Employees earn interest on their EPF balance. Both, the
interest earned and the total amount withdrawn at maturity are tax-free, making
this one of the most popular forms of long-term retirement savings among the
working population in India. Besides retirement, funds accumulated in an
employee’s EPF account can also be used at time of resignation or death. It
also offers financial security in times of emergency and if an employee is
rendered unfit for unemployment.
The EPFO, therefore, services an unusually large number of
subscribers. This, coupled with the large number of associated transactions
involved, ranks the EPFO among the largest organizations, globally. There are
currently more than 5 crore members that the EPFO services. Under the Act, the
EPFO operates three schemes in all viz.
·
Employees’ Provident Fund
Scheme, 1952
·
Employees’ Pension
Scheme, 1995 (which replaced the Employees’ Family Pension Scheme, 1971)
·
Employees’ Deposit Linked
Insurance Scheme, 1976
Under the Act, member employees are eligible for provident fund,
pension and insurance benefits as per the above mentioned schemes.
The
Employee Pension Scheme (EPS) 1995
As per the latest changes in the Employee Pension Scheme that
are effective since 1st September 2014, the EPF is distributed as 12% of the
employee’s salary goes into the EPF account and 12% of the employer's salary is
divided into 3.67% for EPF, 8.33% for EPS, 0.5% for EDLI 1.1% as EPF admin
charges and 0.01% as EDLI Admin charges. The minimum pension under EPS is Rs
1000 and EPF is mandatory for those employees drawing a salary less than Rs
15,000 a month. EDLI cover for each employee has been raised from Rs 1.56 Lakh
to Rs 3 Lakh.
·
Employees are
automatically enrolled into the EPS Scheme only if they are members of the EPF scheme.
·
The central government
also contributes to an employee’s EPS along with employer contribution of 8.33%
of the salary. Central government contributes 1.16% of the employee’s salary
but salary is considered as basic pay plus daily allowance and is taken as a
maximum of Rs 6500
·
Contributions made to the
EPS by the employee does not generate any interest.
·
Eligible service is
calculated in intervals of 6 months. If an employee has had a service of more
than 6 months it is rounded to the next year and less than 6 months is rounded
to the previous year. For example if an employee has had a service of 18 years
and 8 months, the service is considered as 19 months and if the employee has
had a service of 18 years and 4 months, the service is considered as 18 years
·
Pension received is
lifelong and passes on to spouse and two children upon the employee’s death
·
Employees can receive
only pension from EPS and are eligible only after completion of 10 years of
service and must have attained the age of 50 years for early pension and 58
years for regular pension
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Employees Deposit Linked
Insurance Scheme
The employee deposit linked scheme
is linked to the EPS scheme and EPF scheme. Everyone subscribing to EPF scheme
will be enrolled in the EDLI scheme automatically. The employer is not given
the choice to pick any of the three schemes.
Subscription to EDLI:
The
EDLI Scheme is clubbed and linked to the EPF scheme and EPS scheme. All employees who subscribe to the EPF scheme
are automatically enrolled in the EDLI scheme.
While
the employee cannot choose which of these three schemes he or she wishes to
subscribe to, the schemes are transferrable when the employee shifts jobs.
Contributions will continue in the same account from the new employer.
Applicability of EPFO
Registration
Which industries and businesses are covered under the EPF act,
1952?
·
All such industries that are covered under the schedule I of the
EPF Act, 1952 are liable to get registered in the EPF scheme if their employee
strength is 20 or more, even for one month of a financial year.
·
For cinemas, the employee strength threshold is 5 or more.
Which employees are covered under the EPF act?
·
All those employees whose salary (basic+DA) is more than INR
15000 are covered under the EPF act.
Benefits of
Registration under EPF
·
Tax free savings under section 80 of Income tax act if you
withdraw your EPF amount after 5 years
·
Lucrative interest rate of 8% per annum
·
Post retirement benefits: FULL EPF and EPS amount can be
withdrawn at retirement if you have completed 10 years of service.
·
Your EPF amount can be used towards marriage expenses, death,
home loan, construction, etc.
·
You will get unemployment benefits if you stay jobless for more
than 2 months.
·
Life Insurance: EDLI is an insurance scheme meant to provide
financial relief to the family members of an employee who died a sudden death.
·
The ease of using and tracking the EPF contribution through UAN
(Universal account number). Click here to know more about the Huge benefits of
UAN number and How to activate your NOW.
What is the EPF
registration process?
Mandatory EPF registration
·
If the employee strength of any eligible organization hits the
threshold of 20 even for one month in a financial year, then that organization
is liable to apply for EPF registration to avoid several penalties in near
future.
Voluntary Registration:
·
If employer wishes to provide the benefits of EPF to the
employees even if the employee strength is less than 20, then he/she can apply
for voluntary EPF registration under the EPF act after taking consent from all
the employees.
EPF registration process for
employers:
·
The revised process for EPF registration has been made somewhat
easier than the previous method but it still is very complex and requires
several documents from the employer including a digital signature and PAN.
EPF rates and Calculation:
As we have stated above, the EPF (employee provident fund)
contribution goes into the following accounts:
·
EPF (employee provident fund account)
·
EPS (employee pension account)
·
EDLI (employee deposit linked insurance scheme)
·
ELDI Administration charges (employee deposit linked insurance
scheme administration charges)
Documents Required
For EPF Registration
Employers need to give the following
details to successfully register themselves
·
Name and address of the company
·
Head office and branch details
·
Mention date of incorporation/registration of company
·
Fill up details of employees – total employee strength
·
Activities the business/enterprise is involved in – i.e.
manufacturing, production, service, etc.
·
Legal details – This is related to legal status of a company,
i.e. whether it is a private firm/public company, partnership or society, etc.
·
Owner details, including designation and address of Directors
and partners
·
Particulars related to wages of employees, i.e. total wages paid
out during a month
·
Details of bank with whom company have banking relationship
·
PAN details
·
Basic information of employee (name, date of joining, salary,
etc.)
Documents required
Employers are
expected to provide certain documents as proof of registration of Employee
Provident Fund in order to successfully register, a list of which are mentioned
below.
·
Copy of partnership deed if the company is a partnership firm
·
A copy of the Certificate of incorporation for a Public or
Private Limited Company, issued by the Registrar of Companies
·
Societies need to provide a copy of their registration
certificate
·
Societies need to provide a copy of the rules and objectives of
the society
·
Public and Private Limited Companies are required to submit a
copy of the MOA and AOA
·
All legal documents required under the Income Tax Act
·
PAN details of company
·
Digital Signature Certificate (DSC) Class II
·
Partition deed
·
Proof of incorporation – first sales invoice/ license issued by
the authorities
·
Details related to the salary of employees
·
Balance sheet details
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