Union Budget 2018-19 Analysis - Employees' Provident Funds and Miscellaneous Provisions Act, 1952 - Neeraj Bhagat & Co.
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Union Budget
2018-19
Analysis
Employees’ Provident
Funds and Miscellaneous
Provisions Act, 1952
© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.
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Employees’ Provident Fund
About EPFO
The Employees' Provident Fund The Employees' Provident Fund (EPF) is a
Organisation (abbreviated to EPFO), is savings tool for the workforce. It is a
an Organization tasked to assist the scheme managed under the Employees'
Central Board of Trustees, a statutory Provident Funds and Miscellaneous
body formed by the Employees' Provisions Act, 1952, by the Employees'
Provident Fund and Miscellaneous Provident Fund Organisation (EPFO).
Provisions Act, 1952 and is under the
administrative control of the Ministry of Presently, the following three schemes
Labour and Employment, Government are in operation under the Act:
of India. • Employees' Provident Fund Scheme,
EPFO assists the Central Board in 1952
administering a compulsory • Employees' Deposit Linked Insurance
contributory Provident Fund Scheme, a Scheme, 1976
Pension Scheme and an Insurance • Employees' Pension Scheme, 1995
Scheme for the workforce engaged in
the organized sector in India. It is also Insurance Scheme: All members
the nodal agency for implementing contributing to Provident Fund are
Bilateral Social Security Agreements automatically insured for their life during
with other countries on a reciprocal the Service. Employer’s Contribution to
basis. the Insurance Scheme is 0.5%. The max.
The schemes cover Indian workers as amount payable to the nominee in case of
well as International workers (for death of employee is Rs.3,00,000.
countries with which bilateral
Pension Fund: All employees covered
agreements have been signed. As of
under Provident Fund become members
now 17 Social Security Agreements are
of Pension Scheme. 8.33% of Basic Salary
operational). It is one of the
upto Rs.15,000/- is contributed to Pension
largest social security organisations
Scheme from employers share of
in India in terms of the number of
contribution. A minimum period of ten
covered beneficiaries and the volume of
years of contributory service is required
financial transactions undertaken. The
to be eligible to receive monthly Pension.
EPFO's apex decision making body is
Full pension is payable on completion of
the Central Board of Trustees (CBT).
20 years of contributory service. 2
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Employees’ Provident Fund
Eligibility Applicability
Any person who is employed for work • Every establishment which is
of an establishment or employed factory engaged in any industry
through contractor in or in connection specified in Schedule 1 and in
with the work of an establishment and which 20 or more persons are
drawing salary upto Rs.15,000/- p.m. employed.
(Basic+ DA). • Any other establishment employing
20 or more persons which Central
Government may, by notification,
Rates of Contribution under EPF specify in this behalf.
• Any establishment employing even
• Employer ‘s share - 12% less than 20 persons can be
• Employee’s share - 12% covered voluntarily u/s 1(4) of the
• Govt. share - 1.15% Act.
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Employees’ Provident Fund
Payment of Contribution Contribution by employer and
employee
Under EPF scheme, an employee has to
pay a certain contribution towards the The contribution paid by the employer
scheme and an equal contribution is is 12% of basic wages plus dearness
paid by the employer. The employee allowance plus retaining allowance. An
gets a lump sum amount including self equal contribution is payable by the
and employer’s contribution with employee also. In the case of
interest on both, on retirement. establishments which employ less than
20 employees or meet certain other
As per the rules, in EPF, employee conditions, as per the EPFO rules, the
whose ‘pay’ is more than Rs. 15,000 per contribution rate for both employee
month at the time of joining, is not and the employer is limited to 10
eligible and is called non-eligible percent.
employee. Employees drawing less than
Rs 15000 per month have to For most employees of the private
mandatorily become members of the sector, it’s the basic salary on which the
EPF. However, an employee who is contribution is calculated. For example,
drawing ‘pay’ above prescribed limit (at if the monthly basic salary is Rs 30,000,
present Rs 15,000) can become a the employee contribution towards his
member with permission of Assistant PF or her EPF would be Rs 3,600 a month (
Commissioner, if he and his employer 12 percent of basic pay) while the
agree. equal amount is contributed by the
employer each month.
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Employees’ Provident Fund
Diversion out of employer’s share
It should, however, be noted that not
all of the employer’s share moves into
the EPF kitty. Out of employer’s
contribution, 8.33% will be diverted to
Employees’ Pension Scheme, but it is
calculated on Rs 15,000. So, for every
employee with basic pay equal to Rs
15,000 or more, the diversion is Rs
1,250 each month into EPS. If the
basic pay is less than Rs 15000 then
8.33% of that full amount will go into
EPS. The balance will be retained in
the EPF scheme. On retirement, the
employee will get his full share plus
the balance of Employer’s share
retained to his credit in EPF account.
SCHEME EMPLOYEE’S EMPLOYER’S CENTRAL
GOVT.
Provident Fund 12% 3.67% (12% - 8.33%) Nil
Scheme
Insurance Scheme Nil 0.5% Nil
Pension Fund Nil 8.33%(diverted out of 1.15%
provident fund’s 12%)
© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights 5
Employees’ Provident Fund
Damages and Interest Higher voluntary contribution by
employee or Voluntary Provident Fund
If an employer makes default in
payment of any contribution to the The employee can voluntarily pay
fund, or in transfer of accumulations higher contribution above the statutory
required to be transferred, the Central rate of 12 percent of basic pay. This is
PF commissioner or such officer as called contribution towards Voluntary
may be authorized by CG , by Provident Fund (VPF) which is
notification in official gazette in this accounted for separately. This VPF also
behalf, may recover from the earns tax-free interest. However, the
employer by way of penalty, damages employer does not have to match such
at the rates given below: voluntary contribution.
Less than 2 @ 17% per
months annum
Two months and @22% per
above but less annum
than upto four
months
Four months and @ 27% per
above but less annum
than upto six
months
Six months and @37% p.a. on
above total due
contribution
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Employees’ Provident Fund
Withdrawals from the EPF account
According to the EPF Act, for claiming To withdraw money online via
final PF settlement, one has to retire https://unifiedportal.epfindia.gov.in/ ,
from service after attaining 55 years of one may now use ‘UAN based Form
age. The total EPF balance includes the 19’ and in effect bypass the employer
employee’s contribution and that of the signature requirement. This facility
employer, along with the accrued will be available to all those
interest. subscribers whose UAN is activated
There is, however, a window to partially and seeded with the KYC details like
withdraw the amount for those nearing bank account and Aadhaar number.
retirement. Anyone over 54 can The present employer should have
withdraw up to 90 percent of the approved/verified the e-KYC.
accumulated balance with interest. But
what if someone decides to quit his job Interest on account
before reaching 55? Under the existing
rule, the employees, in such cases, can The Interest in EPF is calculated on the
withdraw the full PF balance if he is out basis of monthly running balance. The
of employment for 60 straight days or rate of interest on Employment
more. Provident Fund (EPF) has been slashed
There was a proposal which restricted to 8.55% for the year 2017-18 from
employee access to a part of the funds, 8.65% in the previous fiscal.
allowing for the withdrawal of the
employer contribution only after
attaining the age of 58 years, which
stands in abeyance as of now.
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© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.Employees’ Provident Fund
Universal Account Number So if you are changing jobs and already
have a UAN, you need not get a new UAN
On 1 October 2014, Prime Minister of from your new employer. It is a one-time
India, Mr. Narendra permanent number which will remain the
Modi launched Universal Account same throughout one’s career.
Number for Employees covered by EPFO to
enable PF number portability. When you join a new organisation, the
UAN stands for Universal Account Number first thing you should do is ask your
to be allotted by EPFO. The UAN will act as employer for the ‘New Form No. 11-
an umbrella for the multiple Member IDs Declaration Form’ to furnish the existing
allotted to an individual by different UAN. If you don’t have one, then just give
establishments. The idea is to link multiple your previous PF number along with the
Member Identification Numbers (Member date of exit from your previous job.
Id) allotted to a single member under
single Universal Account Number. UAN is a must for smooth transfer of
Provident Fund
UAN will help the member to view details
of all the Member Identification Numbers For consolidation of a subscriber's
(Member Id) linked to it. If a member is multiple PF accounts, currently EPFO
already allotted (UAN then he/she is subscribers are required to file separate
required to provide the same on joining transfer claims online using UAN. Under
new establishment to enable the employer the new facility, employees can merge as
to in-turn mark the new allotted Member many as 10 previous accounts with their
Identification Number (Member Id) to the UAN at one go.
already allotted Universal Identification EPFO or Employees' Provident Fund
Number (UAN). Organisation has smoothened the
UAN has been made mandatory for all process for allotment of UAN. "Now, the
employees and will help in managing the citizen on going for an employment can
EPF account and even PF transfer and submit generated UAN to the employer
withdrawals will become much easier than so that the same UAN will be linked to
before. Remember, in most cases, the the member ID allotted to member in
employer provides the UAN and the that establishment
employee just has to get it activated by EPFO to receive your PF contributions
providing relevant KYC documents to the only if UAN is linked to current employer.
employer.
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© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.Employees’ Provident Fund
The importance of five years of Tax on early withdrawals
continuous service
Withdrawing the PF balance without
Typically, in early and mid-years of their completing five continuous years of
careers, employees tend to switch jobs. service has tax implications. The total
After leaving, they have two options employer’s contribution amount along
with regard to their EPF. Either they can with the interest earned will get
withdraw it after waiting for 60 days (if taxable in the year of withdrawal.
unemployed) or transfer the balance to Also, the amount of deduction
the new employer. claimed under Section 80C on one’s
own contribution will be added to
The EPF withdrawal is not taxable if one’s income in the year of
one has completed at least five years of withdrawal. In addition, the interest
continuous service. If one has switched earned on one’s own contribution will
jobs in less than five years but also be subject to tax.
transferred the EPF to the new
employer, it will be counted as The government had introduced Tax
continuous service. Someone, for Deducted at Source (TDS) on PF
instance, works for 1.5 years and then withdrawals in order to discourage
joins another organization. He transfers premature withdrawals and promote
his PF balance on to the new employer long-term savings. No tax is deducted
where he continues to work for 3.5 if the employee withdraws PF after
years. Taken together, it will be five five years. Also, TDS shall not be
continuous years of service for the applicable in case of PF transfer from
employee. It is, therefore, better to one account to another. From June 1,
transfer your existing PF to your new 2016, for TDS, the threshold limit of
employer. PF withdrawal has been raised from
Rs 30,000 to Rs 50,000. TDS will be
applicable at the rate of 10 per cent
provided PAN card is submitted.
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© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.Employees’ Provident Fund
Employees' Provident Fund Advances Availing advances
Contributions towards Employees' If you have your Know Your Customer
Provident Fund (EPF) are meant to take (KYC) compliant Universal Account
care of one’s post-retirement needs. Number (UAN), which is activated and
But you don’t have to wait till you seeded to your bank account, you
retire to lay your hands on it. The EPFO don’t have to even go through your
allows one to access one’s EPF even employer to get hold of your EPF. The
during the course of employment. Such UAN Based Form 31 (New) can be
withdrawals are treated as ‘advances’ directly submitted to the EPFO. Else,
and not loans. you may fill in Form 31 and submit it to
the EPFO through your employer.
Such advances are allowed only under The employee can take the advance
specific situations – buying a house, for buying or building a house or
repaying a home loan, medical needs, buying a plot of land and even for
education or marriage of children, etc. construction of a house on a plot
Also, the amount that you can take as owned by the member. The advance
an advance will depend on the specific can also be taken for repayment of the
situation, the number of years of outstanding home loan, for self or
service, etc. As it’s not a loan, one need family member’s medical treatment,
not pay any interest on such advances. for the marriage of self/daughter/son/
Unlike a loan, it is not necessary to brother/sister or for post matriculation
repay the advance. education of son/daughter.
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© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.Employees’ Provident Fund
Special advance scheme for housing
EPFO has recently allowed members i.e. the contributory employees of
the provident fund (PF) scheme to use 90 percent of EPF
accumulations to make down payments to buy houses and use their
accounts for paying EMIs of home loans.
Under the new rules, an essential requirement for a PF member to
withdraw one’s PF money to buy a real estate property is that he or
she has to be a member of a registered housing society having at least
10 members.
As a member, one can use the PF funds for an outright purchase, as a
down payment for a home loan, for buying plots, for the construction
of a house. The transactions can be made through central government,
state government and even from a private builder, promoters or
developers. Only those members who have completed 3 years as a PF
member will be eligible for this scheme.
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© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.Employees’ Provident Fund
Compliance Checklist under EPF Act
S.No. Provision Compliance Form
1. Return of Within 15 days on coverage and whenever there is a Form 5A
ownership of change in ownership
establishment
2. Detail of Detail of employees enrolled as members PF fund, within Form 9
employees 1 month of coverage
3. Nomination Every employee must file Declaration and Nomination Form 2
Form Form as given in Form 2
4. Declaration When you join a new organisation, the first thing you Form 11
Form should do is ask your employer for the ‘New Form No. 11-
Declaration Form’ to furnish the existing UAN. If you don’t
have one, then just give your previous PF number along
with the date of exit from your previous job.
5. Employer and 15th of the following month EPF Challan
Employee’s PF (Online)
dues With ECR
Pension Fund .
6. Transfer Claims Application for transfer of EPF Account from Exit Previous Form 13
of PF Organization and Join New Origination .
7. PF withdrawal Application for exit Employee Form No. 19 ,
claims Form 10C
8. Advances The employee can take the advance for buying or building Form 31
Benefit a house or buying a plot of land and even for construction
of a house on a plot owned by the member
9. On the Death of If a Vaild Nomination Subsists – By the Nominee (S) is/are Form 20, Form
the Member Minor (S) Guardian of the minor (S) 10D and 5(IF)
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