Defined Contribution Plans – Employees’ Provident Fund

Under the defined contribution plan contribution of employer and employee is defined. This plan seeks and runs on the contribution as per agreement and makes available the accumulated balance at the end of period. These plans have offered better transparency and portability to employees and employer and meets the changing corporate world.

 

Employees’ Provident Fund and Miscellaneous Provisions Act,1952

 Applicable to whom?

1. Every establishment which is a factory and 20 or more persons employed
2. Any other establishment with more than 20 employees
3. Other establishment as the central Government may notify

Employee Eligibility:

• Employed through a contractor
• Engaged as an apprentice, not being an apprentice engaged under the Apprentice Act, 1961

Once the Act applies to any establishment, it continues to apply even if the number of employees working there falls below 20 there

Employee Coverage:

The scheme excludes any employee who is:

1. A casual employee
2. An employee whose pay is more than Rs. 6500 per month
3. An employee who is drawing pay of more than Rs. 6500 can become member with permission of Assistant PF Commissioner.
4. A person who is already a member continues to be a ‘member’ even if his pay exceeds Rs. 6500.

 Contribution:

1. The employee contributes 12% of
2. Basic wages + DA + Cash value of any food concession + Retaining allowance
3. Retaining Allowance: Allowance paid to an employee for retaining his service when establishment is not working
4. The rate of contribution is 10% in case of certain establishment like sick industrial company etc

 Allocation of Contribution:

 

Interest:

1. The interest is credited to member’s account on monthly running balance basis
2. Currently the rate of interest is 8.5%
3. The interest rate is declared every year during March/April by central Government in consultation with Central Board of Trustees of PF

Taxability:

1. Employee’s contribution is allowed u/s 80C
2. Employer’s contribution is excess of 12% forms a part in gross salary
3. Interest up to 8.5% is exempt from tax
4. Any excess interest above such limit forms a part in gross salary

 

Withdrawal:

Amount can be withdrawn in full

1.  
   1. On retirement
   2. On retirement on account of permanent incapacity to work
   3. Immediately before migration from India for permanent settlement
   4. On termination of service in case of mass or individual retrenchment
   5. On VRS
   6. After 2 months of resignation, in case of no employment

Advance from the Fund:

1.  
   1. Purchase of dwelling site
   2. Construction of dwelling house
   3. Buying of dwelling house
   4. For illness of member of his family
   5. For marriage
   6. Property damage due to natural calamity etc.

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