Understanding Employee Provident Fund in India

By Suma R.V. - King Stubb & Kasiva

March 6, 2023

Introduction

Employee Provident Fund (“EPF”) is one of the social security schemes, which is in practice in India, promoting employee welfare.  It was established under the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (the “Act”) to provide for the institution of provident funds, pension funds, and deposit-linked insurance funds for the employees in factories and other establishments. The funds which accumulate under EPF are contributed monthly, by the employer and the employee. The responsibility to make such a contribution in the employee’s EPF lies with the employer, where the employee’s contribution is withheld by the employer from the employee’s payable wages/salaries. Subsequently, the employees may use such corpus as a retirement benefit, or during the period until retirement, as permitted and prescribed by the Scheme (defined below), subject to amendments from time to time. In addition to tax advantages, it offers comparatively greater interest rates than other saving plans, the amount of which is directly credited to the provident fund accounts of the employees.

Applicability of the Act(1)

The Act is applicable to:

1.    Every factory employing twenty or more persons, subject to the industry the factory operates in, falls under the purview of Schedule I of the Act; and
2.    Every establishment or class of establishment employing twenty or more persons, notified specifically on this behalf, by the Central Government, by way of notification in the Official Gazette.
3.    In the event, the number of employees falls below twenty in any establishments to which this Act is applicable; such establishments shall continue to be governed by this Act.

Non-Applicability of the Act(2)

This Act does not apply to certain establishments which are as follows:

1.    Any establishment, employing less than fifty persons and working without the aid of power, formed under the Co-operative Societies Act, 1912, or formed under any other state law pertaining to the formation of co-operative societies.
2.    Any Central or State Government’s controlled establishment, the employees of which are entitled to the benefit of contributory provident fund or old age pension, devised by the respective Central or State Government.
3.    To any other establishment set up under any Central, Provincial, or State Act and whose employees are entitled to the benefits of contributory provident fund or old age pension in accordance with any scheme or rule framed under that Act governing such benefits.

Salient Features of the Act

This Act was passed as a social security measure that falls under the category of retirement funds/emergency withdrawal or advance/insurance. The government passed this Act to establish a long-term savings programme that would help individuals in retirement, superannuation, or during any major monetary situation/emergency. The individuals are enabled to live risk-free and a dignified life with ensured social security. The Employees’ Provident Funds Scheme, 1952 (“the Scheme”). EPF in India is regulated by the Act and the Scheme.

The Act and the Scheme are administered by a tri-partite Board known as the Central Board of Trustees, Employees’ Provident Fund, consisting of representatives of Government (both Central and State), Employers and Employees(3).  This Board administers a contributory provident fund, pension scheme, and an insurance scheme for the workforce engaged in the organized sector in India. This Board is assisted by the Employees’ Provident Fund Organization (“EPFO”). The EPFO is under the administrative control of the Ministry of Labour & Employment, Government of India.

The Scheme’s goal is to safeguard the individuals/employees/workers and their families in old age, disability, the early demise of the breadwinner, and in some other contingencies by offering substantial security and prompt financial help when they are in need and/or unable to meet family and social commitments. In various covered establishments, provident fund inspectors are hired to conduct inspections and serve as advisors to both employers and employees. They undertake surveys to make sure the Act is in effect for all applicable establishments and manufacturers. Additionally, they suggest and bring legal action against noncompliant employers, continuing the matter until it is resolved.

The Act, apart from the Scheme, governs two more schemes, namely the Employees’ Pension Scheme, 1995 (“EPS”) and the Employees’ Deposit Linked Insurance Scheme, 1976 (“EDLI”).

It is pertinent to note that, the Scheme restricts the monthly pay of an employee for the purpose of contribution to INR 15,000. However, under para 26 (6) of the Scheme, the jurisdictional EPF authorities may, on the joint request of the employer and employee, allow the employee to contribute more than INR 15,000 provided that the employer gives an undertaking in writing that he shall pay the administrative charges payable and shall comply with all statutory provisions in respect of the employee.

Withdrawal of EPF(4)

EPF may be withdrawn completely or in part in accordance with the Scheme. The following are the ways to withdraw the corpus under EPF:

•    Final settlement under Form 19
•    Transfer of the old account to the new account under Form 13
•    Withdrawal in certain cases under Form 31
•    Financing LIC Policy under Form 14
•    Final settlement in the favour of nominee/beneficiary of a deceased member under Form 20

Withdrawal of EPF under certain cases includes withdrawal for the purpose of purchasing a dwelling house/flat or for the construction of a dwelling house including the acquisition of a suitable site, for the purpose of financing children’s education, marriage purposes, etc.

Individuals may avail the advance corpus subject to certain conditions in accordance with the Scheme which are briefly listed below(5) :

•    Non – refundable advance up to seventy-five percent of the amount standing to his/her credit in the fund in case of continuous unemployment for a period of a month or more
•    Non – refundable advance from his/her fund for illness (whether self or a family member) which shall not exceed the individual’s basis wages and dearness allowance of six months or his/her own share of contribution with interest in the fund, whichever is less
•    Non – refundable advance up to fifty percent of his/her own share of contribution, with interest, standing to his or her credit, from his/her account for his/her own marriage or the marriage of their children, siblings, or for post-matriculation education of their children
•    Non – refundable advance of INR 5,000 (Rupees Five Thousand Only) or fifty percent of his/her own total contribution, with interest, standing to his/her credit, whichever is less for abnormal conditions, such as floods, earthquakes, etc.
•    Non – refundable advance from his/her fund up to INR 300 (Rupees Three Hundred Only) or the amount of wages for a month or the amount standing to the credit in his/her fund as his/her own share of contribution with interest, whichever is less for individuals affected by cut in the supply of electricity
•    Non – refundable advance, for the purchase of equipment to minimize the hardship in the case of individuals who are suffering from being physically handicapped, of the amount not

exceeding the individual’s basis wages and dearness allowance for six months or his/her own share of contributions with interest or the cost of the equipment, whichever is the least

The individuals can visit the EPF portal to register themselves and be able to check the details and manage their accounts. Transfer, withdrawals, credit, debit, and advance with respect to the EPF account are made convenient for individuals through this portal.

(1) Section 1 of the Act
(2) Section 16 of the Act
(3) https://www.epfindia.gov.in/site_en/AboutEPFO.php
(4) Brief details on withdrawal
(5) Scheme

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