Tag Archives: provident fund

Tax Deductions FAQs

14 Dec


Tax Deductions

deductibleA deduction is an item that allows you to take a tax benefit up to the entire amount of the deduction. The good news is that this reduces your taxable income by the amount of the deduction, i.e., by using the deduction you end up paying a lesser amount in taxes. Just as an illustration, lets take the following simple mathematical example.
Amit’s income is Rs.100
Amit’s eligible deduction is Rs.20
Therefore, Amit’s taxable income is Rs.80
If Amit did not have a deduction, then his taxable income would have been Rs.100
By using the deduction Amit has saved taxes on up to Rs.20

 

What are the most commonly available deductions?

There are 4 most commonly used deductions that most people can avail of. These are popularly known by the section of the Income Tax Act under which they appear. Click on each of them to get more details.

80C deduction: Up to Rs.1 lakh, and used towards certain investments, payment of insurance premium, repayment of home loan principal amount, provident fund etc.

80D deduction: Up to Rs.15,000, and used towards annual medical expenses

80E deduction: Deduction of entire amount of interest paid on higher education loan for any family member

80G deduction: Deduction for contribution to charitable organization
In addition to these, there are numerous other deductions that are less common or that might not usually apply to you. Please check with your tax advisor if you might be eligible for any other deductions.

 

80C Deduction:Check out the eligible instruments

This allows a deduction for specific investment, contribution, deposits or payments made by the taxpayer during the tax year.

Who is it available to?

All individuals and HUF (Hindu Undivided Family).

What is the amount of the deduction?

A total of Rs.1 lakh in aggregate across all eligible 80C instruments.

What are the eligible instruments?

The most commonly used eligible instruments towards the 80C deductions are:

  • Life insurance premium, including premium for a unit-linked insurance plan (ULIP)
  • Contribution to Public Provident Fund or Provident Fund
  • Investment in pension plans
  • Investment in Equity Linked Savings Schemes (ELSS) of mutual funds
  • Home loan principal repayment
  • Investment in Infrastructure Bonds, National Savings Certificates
  • Payment of tuition fees to for full-time education of any 2 children of an individual
  • Fixed deposit with any scheduled bank or post office for 5 years
  • Senior citizens savings scheme

Please check with your tax advisor in case from time to time there are other instruments that become eligible under 80C.

 

80E Deduction:Check out the eligible instruments

This allows a deduction for payment of interest of loan taken towards higher education.

 

Who is it available to?

The deduction can be taken by the taxpayer for his/her higher education loan or for any member of the taxpayer’s family. The amount must have been paid using the taxpayer’s income chargeable to tax.

 

What is the amount of the deduction?

The entire payment of interest is deductible. The deduction is available for a maximum period of 8 years or till the principal and interest amount have been repaid, whichever comes earlier.

 

What are the eligible instruments?

The 80E deduction is usable only in the case of loan taken for higher education from a financial institution or recognized charitable institution. In this context, higher education means full-time studies for any graduate or post-graduate course specifically in engineering, medicine, management, applied sciences, mathematics or statistics. Please make yourself familiar with whether your course and subject of study are eligible for this deduction.
Please check with your tax advisor in case from time to time there are changes to the amount of deduction under 80E and the types of education loans permitted.

80G Deduction:Check out the eligible instruments

This allows a deduction for donations made to recognized charities and charitable institutions.

Who is it available to?

The deduction can be taken by any individual, HUF (Hindu Undivided Family), firm or company. Please note that donations made in kind are ineligible for the deduction.

What is the amount of the deduction?

The deduction available is 100% of the amount contributed to the charity, or in some cases 50% of the amount, which may further be with or without restriction. This calculation can get a little complicated, so its best if you ask your tax advisor on the total amount that you will be eligible for. Also, different charities get treated differently, so best to seek professional advice on this matter depending upon the charity of your choice.

What are the eligible charities and charitable institutions where my donations are eligible for the deduction?

Common charities that are eligible for this deduction are the Prime Minister’s National Relief Fund, Prime Minister’s Drought Relief Fund. Before making a donation, please check with the charity if it is recognized and has been registered with the appropriate authorities.
If you make a donation to a notified temple, mosque, gurudwara or church, it might also be eligible but please confirm that this place of worship has been registered with the authorities. As mentioned above, donations made in kind are ineligible for the deduction, so make sure that you pay by cheque or bank draft and keep record of the transaction.
Please check with your tax advisor in case from time to time there are newer charitable institutions that become available or there are changes to the amount of deduction under 80G.

 

Less Commonly Used Tax Deductions

Under section 80 of the Income Tax Act, there are other less commonly used deductions. Please check with your tax advisor on how to use them, if you are eligible for these

 

deductions

Top Misconceptions about Taxes

Do I need to file my tax returns? How do I file them?

Misconception 1:
  • My employer has deducted tax at source from my paycheck and thus I don’t have to worry about filing tax returns.
  • Just because taxes have been paid on your behalf does not mean that filing a tax return is not required. If your combined annual income from all sources is above the amount that is exempt from income tax you are required to file your returns. Your employer gives to you a statement called Form 16 at the end of the financial year that shows the amount of tax that has been deducted at source. You will need to put the tax deduction amount shown on the Form 16 on your tax return form. Therefore, it is important to ensure that you obtain this statement from your employer on time.
Misconception 2:
  • Filing tax returns is a complex and cumbersome process. I need a Chartered Accountant to help me file my tax returns.
  • Contrary to popular belief preparing and filing a tax return is actually quite simple. In fact if you have a digital signature you can accomplish the entire process sitting at home on your computer thanks to the e-filing facility available on the tax department website (www.incometaxindiaefiling.gov.in). Alternatively, you can submit the returns online, print a one-page receipt, sign it and drop it off at the income tax office within fifteen days of submitting the returns. No documents are required to be submitted with the receipt. If you so desire, you can fill out the forms on your own. However, if you want professional help there are many third party service providers who offer tax preparation and filing services for as low as Rs.200.

Housing and tax

Misconception 3:
  • he interest I pay on a home loan is deductible from my income from house property up to a maximum of Rs. 1,50,000 per year.
  • This is true if you have taken a home loan for a single house and it is self-occupied. However, if you take a home loan on a second house, the entire interest paid on the loan can be claimed as a deduction from your income on house property. If you are planning to invest in real estate with the expectation that the property would appreciate in value over time, you could take advantage of the above rule. Thus a smart investment strategy would be to take a home loan on a second house, rent out the house and claim interest paid on the loan as a deduction from the rental income, thereby reducing your borrowing costs significantly.
Misconception 4:
  • I receive tax exemption on the actual rent I pay for my rented home. This is not entirely accurate. Section 13 A of the Income Tax Act states that the maximum amount that is exempt from tax is the lower of the following amounts: (i) the House Rent Allowance given by the employer, (ii) 50% of your basic salary if you live in a metro, (iii) or, actual rent paid minus 10% of your basic salary. Thus if actual rent paid is lower than 10% of your basic salary you receive no exemption. The other key point is that you cannot claim any exemption under this section if you live in your own home or if you are not paying rent to anyone.

The magical 80’s

 

Misconception 5:
  • Section 80C benefits are available only on making an investment or saving or paying a premium on insurance.
  • You can claim a deduction for the school or university tuition fees you pay for your children (maximum of two) as long as they are enrolled in a full time program at any institute in India. In addition you can claim a deduction for the repayment of principal on any home loan that you may have taken. Both these deductions have to of course be within the overall annual Section 80C cap of Rs.1lakh.
Misconception 6:
  • If I avail of tax free medical reimbursement from my employer up to Rs.15,000, I cannot claim deduction on health insurance premium paid.
  • Tax free medical reimbursement by your employer up to an amount of Rs.15,000 per year for your family’s medical expenditure is separate from the Rs.15,000 deduction available under Section 80D for the premium you pay on buying health insurance. Both these exemptions are covered under different sections of the Income Tax Act and you can enjoy benefits from both. The former covers costs for your daily medical needs and outpatient treatment (OPD), while the latter protects you from expenditure for hospitalization.
Misconception 7:
  • My friends tell me that the only interest payment I can claim an exemption for is the interest paid on home loans.
  • There is a section of the Income Tax Act called 80E that permits deduction on interest paid on loans taken for higher education for self, spouse and children. There is no limit on the amount of deduction you can claim. The only thing to keep in mind is that the program for which the loan is taken should be a graduate or post-graduate program in engineering, medicine or management or a post-graduate course in the pure or applied sciences.

Interest income and others

Misconception 8:
  • Interest I earn on my savings account balance is exempt from income tax.After the removal of Section 80L of the Income Tax Act, interest income from any source including savings account balance, is subject to income tax. What you may be referring to is the rule around tax deducted at source for the interest payments you receive on your savings account. As per existing rules, as long as the combined interest income that you earn, on any savings accounts or fixed deposits, at a single bank branch, is less than Rs.10,000 there will be no tax deducted at source. If you want to better manage your cash flow and do not want tax to be deducted at source you could consider spreading your deposits across multiple bank branches, even if they are of the same banking company.
Misconception 9:
  • I have to pay taxes on interest received from my fixed deposits only on maturity.
  • Your tax liability on interest income from your fixed deposit is calculated on an accrual basis. Let’s say that you have made a fixed deposit for three years and have elected not to receive any regular interest payouts and instead have decided to receive a lump sum payout on maturity after three years. That does not mean that you are not liable to pay income tax annually on the interest that is credited to your fixed deposit account every year, even though you do not have access to that interest income.
Misconception 10:
  • I received cash as a gift from a close friend. I do not have to pay any tax.
  • You are right as long as the amount was less than Rs.50,000 during the financial year. The applicable rules for gift tax state that any cash gifts, without any upper limit, received from specified relatives are exempt from income tax. However, if you receive a cash gift from a friend, which exceeds Rs.50,000 in one financial year, you are liable to pay income tax on the entire amount. However, the good news is that cash gifts received during your marriage, of any amount, and from anyone are totally free from income tax.

Regards,

Pinal Mehta

Human Resources

Advertisements

Understanding CTC and your Actual Salary

14 Dec

15fin3Whether you are joining your first job or changing jobs, it is important to understand the difference between cost to company (CTC) and take home salary. It will help you in negotiate better with the HR and in structuring your salary.

One of the most commonly used terms by companies, yet least understood by its employees is ‘cost to company’ or CTC. The CTC, as quoted by employers and the take home pay are two different amounts.

Also salary hikes in the form of an increased CTC does not necessarily increase the monthly salary. So what exactly is CTC and as an employee what all are you entitled for?

This article aims to clarify the confusion that often arise in employees’ minds when it comes to salary structures.

 

Lets Understand about the CTC (Cost To Company)

Demystifying cost to company

Ravi Bhushan, a fresh software graduate, joined a top notch IT company. For his first job, he was extremely happy with the total CTC of Rs 6,00,000.

On the basis of this CTC, Ravi made lavish plans to spend his first month’s salary. Expensive gifts for family, a swanky new bike and the latest mobile phone. But when he got his first salary, he realised some of his plans had to wait.

His take home salary was nowhere close to his estimation. He approached his HR, who then explained the breakup of his CTC, which he had just glanced over at the time of joining.

Here’s what his HR manager explained to him:

The cost to company refers to the total expenditure a company would have to incur to employ you.

It includes monetary and non-monetary benefits, such as monthly pay, training costs, accommodation, telephone, medical reimbursements or other expenses, borne by the company to keep you employed. The total CTC need not be the actual salary in hand at the end of the month.

It is simply a sum of various components put together.

Components of CTC

Companies offer various attractive components in the CTC to retain and boost the morale of the employees. Whereas some salary components are fully taxable some are fully tax-exempt. The composition of your CTC and a few of its components could be grouped as below.

1. Fixed salary

This is the major part of your CTC and forms part of your monthly take home. It commonly consists of the following:

Basic salary: The actual pay you receive for rendering your services to the company. This is a taxable amount.

Dearness allowance: A taxable amount, this is paid to compensate for the rising cost of living.

House rent allowance (or HRA): Paid to meet expenses of renting a house. The least of the following is exempt from tax.

Actual HRA received:

  • 50 per cent of salary (basic + DA) if residing in a metropolitan city, or else 40 per cent
  • The amount by which rent exceeds 1/10th of salary (basic + DA)

Conveyance allowance: Paid for daily commute expenses. Up to an amount of Rs 800 per month is exempt from tax.

2. Reimbursements

This is the part of your CTC, paid as reimbursements through billed claims.

Meal coupons: Many companies provide their employees with subsidised meal coupons in their cafeterias. Such costs incurred by companies in the form of subsidies are included in the CTC. Meal coupons are tax exempt provided it is not in the form of cash.

Mobile/Telephone bills: Telephone or mobile expenditure up to a certain limit is reimbursed by many companies through a billed claim, and is a taxable amount.

Medical reimbursements: Paid either monthly or yearly, for medicines and medical treatment. The entire amount is taxable. However, up to Rs 15,000 could be tax exempt, if bills are produced.

3. Retirement benefits

This is available to you only on retirement or resignation.

These include:

Provident fund: Employers contribute an amount equal 12 per cent to the provident fund account. This employer’s contribution though received only on retirement or resignation, is an expense incurred by the company every month and thus is included in your CTC.

Gratuity: Companies manage gratuity through a fund maintained by an insurance company. The payment towards the gratuity annually is sometimes shown in CTC.

4. Other benefits and perks

Leave travel allowance: It is the cost of travel anywhere in India for employees on leave. Tax exemption if allowed twice in a block of four calendar years.

Medical allowance: Some companies offer medical care through health facilities for employees and their families. The cost of providing this benefit to the employee could also form part of CTC.

Contribution to insurance and pension: Premiums paid by companies on behalf of employees for health, life insurance and Employees Pension Scheme, could form a part of the CTC.

Miscellaneous benefits: Other perks which companies include under CTC could be electricity, servant, furnishings, credit cards and housing.

Bonus: This is the benefit paid on satisfactory work performance for employee motivation. Though this amount is not assured to the employee, most companies include the maximum amount that can be paid as bonus, to the CTC. The two types of bonuses that are normally paid out are:

1. Fixed annual bonus: Paid on the basis of employee performance, either monthly or in most cases annually, it is a fully taxable amount.

2. Productivity linked variable bonus: Complete bonus amount is paid only on 100 per cent achievement of target, nevertheless it still is included as part of your CTC.

 

Moral of the Story :- Lessons learnt

Each company too has its own way of calculating the cost to company. Let us revisit Ravi’s case.

Ravi realised, that an attractive CTC does not necessarily indicate a heavy monthly take home. Benefits like training and development, whether undertaken by him or not was still considered part of his CTC. Here is what one should keep in mind:

One must take time to find out what the actual benefits are by asking for the break-up of the CTC so as to know the entitlement.

If you are just joining the company, try to negotiate with the HR as to opting out of some facilities in exchange for increasing the take home.

Understand the expenditure limits and tax angle of perks and benefits, and use them smartly.

Here is a Sample Salary Breakup of a MID – LEVEL Manager

080822082723_mid-level-manager

 

Thanks and Regards,

Pinal Mehta

Source:- Rediff Files

FAQs – Employee Provident Fund

19 Nov

FAQ’s on Employee Provident Fund

Q1) What is the Contribution for Provident Fund both by the Employer & Employee ?
Ans : The Employee contributes 12% of his /her Basic Salary & the same amount is contributed by the Employer.
Q2) Is it Compulsory for the all the employees to contribute to the Provident Fund ?
Ans : Employees drawing basic salary upto Rs 6500/- have to compulsory contribute to the Provident fund and employees drawing above Rs 6501/- have an option to become member of the Provident Fund .
Q3) Is it beneficial for employees who draw salary above Rs 6501/- to become member of Provident Fund ?
Ans Yes because provident fund contribution by the employer & employee is not a taxable income for Income Tax purpose.

Q4) What if an employee while joining establishment has a basic salary of Rs 4200 and after some period of time his basic salary increases above Rs 6501/-, does he have an option to terminate his member ship form the Provident fund act?
Ans : Employee who while joining the organisation has a basic salary above Rs 6501/- have an option to either become or avoid becoming member of Provident fund but employees whose basic salary while joining the organisation is less then Rs 6501/- but after some period of time their basic increases above Rs 6501/- have to compulsorily continue to be member of provident Fund.

Q5) What is the contribution percentage to the Provident fund and Pension Scheme ?
Ans : Employers contribution of 12% of basic salary is totally deposited in provident fund account Whereas out of Employees contribution of 12% , 3.67% is contributed to Provident fund and 8.33% is deposited in Pension scheme.

Q6) Which form has to be filled while becoming member of provident fund ?
Ans : Nomination Form No 2 has to be filled to become a member of the Provident fund, form is available with HR department .

Q7 ) Which form has to be filled while transferring provident fund deposit ?
Ans : You just have to fill form no 13 to transfer your P.F amount.

Q8 ) What is the provision of the scheme in the matter of nomination by a member ?
Ans : Each member has to make a nomination to receive the amount standing to his credit in the fund in the event of his death. If he has a family, he has to nominate one or more person belonging to his family and none other. If he has no family he can nominate any person or persons of his choice but if he subsequently acquires family, such nomination becomes invalid and he will have to make a fresh nomination of one or more persons belonging to his family. You cannot make your brother your nominee as per the Acts.

Q9 ) When is an employee eligible to enjoy pension scheme ?
Ans : For an employee to become eligible for Pension fund, he has to complete membership of the Fund for 10 Years.

Q10 ) What does it mean by continuous service of ten years ?
Ans : When we say continuous service of 10 years in Employee Pension Fund, we mean to say that during services, for e.g., an employee who has worked with X company for say 3 years, then he resigned from that organisation and joined Y company, wherein he worked for 2 years, then resigned from there to join establishment for 5 years but during these 10 years of service he has not withdrawn but transferred his Employee pension fund, then we say continuous service of ten years.

Q11 ) When can an employee avail the benefit of Employee pension fund scheme which he has contributed during his ten years of continues service /
Ans : An employee can avail the benefit after completion of 58 years of service.

Q12 ) What happens to the provident fund & Employee Pension fund if an employee who wants to resign from the service before completion of ten years of continues service?
Ans : Employee can withdraw the PF accumulations by filling Forms 19 & 10 C which is available with the HR department.
Q13 ) What is this 19 & 10C form ?
Ans : Form No 19 is for Provident fund withdrawal & Form No. 10 C is for Pension scheme withdrawal.

Q14 ) Do we get any interest on the amount which is deposited in the Provident Fund account?
Ans : Compound interest as declared by the Govt. is given for
every year of service.

Q15 ) What is the accounting year for Provident fund account?
Ans : Accounting year is from March to February.

Q16 ) What are the benefits provided under Employee Provident Fund Scheme?
Ans : Two kinds of benefits are provided under the scheme-
a) Withdrawal benefit
b) Benefit of non -Refundable advances

Q18 ) What is the purpose of the Employee’s Pension Scheme ?
Ans : The purpose of the scheme is to provide for
1) Superannuation pension.
2) Retiring Pension.
3) Permanent Total disablement Pension
Superannuation Pension: Member who has rendered eligible service of 20 years and retires on attaining the age of 58 years.
Retirement Pension: member who has rendered eligible service of 20 years and retires or otherwise ceases to be in employment before attaining the age of 58 years.
Short service Pension: Member has to render eligible service of 10 years and more but less than 20 years.

Q19 ) How much time does it take to receive P.F & pension money if an employee resigns from the Service?
Ans : Normally the procedure for receiving P.F & Pension money is , the employee has to fill 19 & 10 c Form and submit the same to PF Desk , which is then submitted to the P.F office after two months, this two months is nothing but a waiting period as the rules are that an employee should not be in employment for two months after resigning if he has to withdraw his P.F amount. After completion of two months the form is submitted to the regional provident fund Commissioner office after which the employee receives his amount along with interest within a period of 90 days.

Q20 ) Do we receive money through postal order ?
Ans Previously there was a procedure wherein member use to get P.F through Postal order but now While submitting the P.F form withdrawal form you have to mention your saving Bank account No. & the complete address of the Bank where you hold the account.

Q21 ) How would I know the amount of accumulations in my PF account ?
Ans : PF office sends an annual statement through the employer which gives details about the PF accumulations. The statement contains details like, Opening balance, amount contributed during the year, withdrawal during the year, interest earned and the closing balance in the PF account. This statement is sent by the PF department on completion of the financial year.

Q22 ) Which establishments are covered by the Act ?
Ans : Any establishment which employs 20 or more employees. Except apprentice and casual laborers, every Employee including contract labour who is in receipt of basic salary up to Rs. 6500 p.m. is covered by the Act.

Q23 ) In case after registering the establishment at any point in time, the number of employees working in it becomes less than 20 then will the Act apply ?
Ans : Any establishment which has been covered under the Act once shall continue to be governed by the Act even if the number of persons employed therein at any time falls below 20.

Q24 ) Is the Act applicable to a factory which is closed down but is employing a few employees to look after the assets of the establishment ?
Ans : No, Where the establishment is closed down and only four security men are employed for keeping a watch over the assets and properties of the establishments, the Act would not be applicable.

Q25 ) Is a trainee an employee under the Act ?
Ans : Yes, a trainee would be considered as an employee as per the Act but in case the trainee is an apprentice under the Apprentice’s Act then he/ she will not be considered as an employee under this Act.

Q26) Is it possible to appeal the orders of the Central Government or the Central Provident Fund Commissioner ?
Ans : Yes, there is a body called as Provident Fund Appellate Tribunal where an employer can appeal.

Q27 ) Who is the authority to decide regarding the disputes if any ?
Ans : In case there is a dispute regarding the applicability of the Act or the quantum of money to be deducted etc. the authority to decide are the
i)Central Provident Fund Commissioner,
ii)any Additional Provident Fund Commissioner,
iii)any Additional Central Provident Fund Commissioner
iv)any Deputy Provident Fund Commissioner
v)any Regional Provident Fund Commissioner or
vi)any Assistant Provident Fund Commissioner

Q28 ) What in case there are workers involved as Contract labour ?
Ans : It is the responsibility of the Contractor to deduct the PF and submit a statement to the Principal Employer in the prescribed format by 7th of every month. The Company becomes the Principal Employer would be responsible for the PF deduction of the workers employed on contract basis.

Q29 ) Are the persons employed by or through a contractor covered under the Scheme ?
Ans : Persons employed by or through a contractor are included in the definition of ” employee ” under the Employee’s Provident Finds Act, 1952, and as such, they are covered under the Scheme.

Q30 ) In case the Contractor fails to deduct and submit the PF amount from the contract workers then what is to be done ?
Ans : The Company being the Principal employer is responsible for the PF to be deducted from the Contract workers as well. In case the Contractors fails to deduct and submit the PF dues then the Company has to pay the amount and can later on recover the amount from the Contractor.

Q31 ) Could the employer be punished in case the remittance of contribution by him is delayed in a Bank or post office ?
Ans : Employer cannot be punished or penalized in case there is a delay in the remittance of the contribution on account of delay in Bank or post office.
Q32 ) What happens in case there is a salary revision and a raise in the basic salary of the employee and arrears need to be paid, Do we need to deduct PF from the arrears as well ?
Ans : Arrears are considered to be emoluments earned by the employee and PF is to be deducted from such arrears.
Q33 ) Is it possible for an employee to contribute at a higher rate of interest than 12 % ?
Ans : Yes, if an employee desires to contribute an amount at a higher rate of interest than 12 % of basic salary then they can do so but it does not become obligatory for the employer to pay anything above than 12 %.This is called voluntary contribution and a Joint Declaration Form needs to be filled up where the employer and the employee both have to give a declaration as to the rate at which PF would be deducted.

Q34 ) What is the interest on the PF accumulations ?
Ans : Compound interest as declared by Central Govt. is paid on the amount standing to the credit of an employee as on 1st April every year.

Regards,

Pinal Mehta

Provident Fund under The Employee’s Provident Funds Act ,1952

15 Nov

The Employees� Provident Funds and Miscellaneous Provisions Act, provides for compulsory contributory fund for the future of an employee after his retirement or for his dependents in case of his early death.

It extends to the whole of India except the State of Jammu and Kashmir and is applicable to:

  1. every factory engaged in any industry specified in Schedule 1 in which 20 or more persons are employed;

  2. every other establishment employing 20 or more persons or class of such establishments which the Central Govt. may notify;

  3. any other establishment so notified by the Central Government even if employing less than 20 persons.

EMPLOYEES ENTITLED

Every employee, including the one employed through a contractor (but excluding an apprentice engaged under the Apprentices Act or under the standing orders of the establishment and casual laborers), who is in receipt of wages upto Rs. 6,500 p.m., shall be eligible for becoming a member of the funds.

The condition of three months� continuous service or 60 days of actual work, for membership of the scheme, has been done away with, w.e.f. 1.11.1990. Workers are now eligible for joining the scheme from the date of joining the service.

EMPLOYEES� PENSION SCHEME, 1995

The Government has framed the Employees� Pension Scheme, 1995, w.e.f. 16.11.1995. The existing Employees� Family Pension Scheme has been merged under the new scheme.

The new scheme envisages providing monthly pension to employees on superannuation, pensioning to widows on death after superannuation, monthly pension for children of the subscribers, monthly pension to members on account of permanent total disablement during service, etc.

The new scheme shall be compulsory for all the existing members of the Family Pension Scheme and those who become members of the Employees� Provident Fund Scheme on or after 16.11.1995. Besides, the following employees shall have an option to join the new Scheme:

  1. Employees who ceased to be members of the Pension Fund between 1.4.1993 to 15.11.1995.

  2. Employees who are members of the Provident Fund as on 16.11.1995 and not members of the Pension Fund.

Members who have died between 1.4.1993 to 15.11.1995 shall be deemed to have exercised the option of joining the scheme on the date of the death.

Members referred in clause (a) shall exercise the option to become members of the scheme by returning the amount of withdrawal benefit received, if any, together with interest @ 8.5% p.a.

Employees referred in clause (b) shall be deemed to have joined the scheme w.e.f. 1.3.1971 on remittance of past period contribution with interest thereon.

TERM OF SCHEME

Every member of the Employees� Pension Fund Scheme shall continue to remain the member till the earliest happening of any of the following events:

  1. he attains the age of 58 years; or

  2. he avails the withdrawal benefit to which he is entitled vide para 14 of the scheme; or

  3. he dies; or

  4. the pension is vested in him.

Every employer shall send to the Commissioner, within three months of the commencement of the scheme, a consolidated return of the employees entitled to become members of the new scheme.

EMPLOYER�S CONTRIBUTION

The employer is required to contribute the following amounts towards Employees� Provident Fund and Pension Fund

  1. In case of establishments� employing less than 20 persons or a sick industrial (BIFR) company or �sick establishments� or any establishment in the jute, beedi, brick, coir or gaur gum industry. �10% of the basic wages, dearness allowance and retaining allowance, if any.

  2. In case of all other establishments� employing 20 or more person-12% of the wages, D.A., etc.

A part of the contribution is remitted to the Pension Fund and the remaining balance continues to remain in Provident Fund account.

Where, the pay of an employee exceeds RS. 6500 p.m., the contribution payable to Pension Fund shall be limited to the amount payable on his pay of RS. 6500 only, however, the employees may voluntarily opt for the employer�s share of contributions on wages beyond the limit of RS. 6500 to be credited to the Pension Fund.

VOLUNTARY APPLICATION OF THE ACT

The employer and majority of employees of an establishment may agree for the voluntary application of the provisions of the Act in relation to that establishment. For this purpose, an application to the Central Provident Fund Commissioner, has to be made, who may, by notification, extend the provisions of the Act to that establishment, w.e.f. the date of such agreement or any subsequent date specified in such agreement.

The employer is required to contribute the following amounts towards Employees� Provident Fund and Pension Fund

  1. Where the parties voluntarily get themselves covered by the Act, they are completely and fully governed by the Act. But their liability to make contribution is, in case of establishments� employing less than 20 persons or a sick industrial (BIFR) company or �sick establishments� or any establishment in the jute, beedi, brick, coir or gaur gum industry. �10% of the basic wages, dearness allowance and retaining allowance, if any.

  2. In case of all other establishments� employing 20 or more person-12% of the wages, D.A., etc.

PENALTY FOR DEFAULT IN PAYMENT

If the employer defaults in making payment of any contribution, arrears, accumulations, administrative charges, to the Fund, he shall be liable to pay, by way of penalty, damages at the following rates:

Period of Default
Rate of Damages (%p.a.)
(i)  Less than 2 months
17
(ii)  2 months and above but less than 4 months
22

(iii)  4 months and above but less than 6 months

27
(iv)  6 months and above
37

DISPUTE, DETERMINATION AND RECOVERY

In case, where a dispute arises regarding applicability of the Act, the Central Provident Fund Commissioner or any other officer (to whom the powers of determination have been delegated), may decide the dispute and determine the amount due from an employer, under the Act or the schemes framed thereunder. Before making any order the officer shall conduct such inquiry as he may deem necessary and shall allow a reasonable opportunity to the employer for representing his case.

Further, where an officer has reason to believe that an amount due from the employer has escaped determination, he may re-open the case within five years and re-determine the amount due from the employer.

INTEREST

The employer shall be liable to pay simple interest @ 12% p.a. on any amount due from him under the Act, from the date on which it becomes due till the date of its actual payment.

MODES OF RECOVERY

Any amount of contribution, damages, accumulations required to be transferred, or administrative charges, due from an employer, may be recovered from him in any of the following modes-

  1. attachment and sale of the movable or immovable property of the establishment/employer;
  2. arrest of the employer and his detention in prison;
  3. appointing a receiver for the management of the movable or immovable properties of the establishment/employer.

The Recovery Officer pursuant to a recovery certificate issued by the authorised officer specifying shall make the recovery the amount of arrears.

STAY OF RECOVERY PROCEEDINGS

The authorised officer may grant time for the payment of the amount, and thereupon the Recovery Officer shall stay the proceedings until the expiry of the time so granted.

OTHER MODES OF RECOVERY

Besides, the modes aforesaid, the authorised officer may recover the amount by any of the following modes:

  • Recovery from any person of amount due from him to employee who is in arrears.
  • Application for release of money, to the Court in whose custody there is money belonging to the employer.
  • Recovery by distraint and sale of movable property.

    APPEAL

    Any person aggrieved by an order of determination or re-determination may prefer an appeal to the PF Appellate Tribunal. He shall however, deposit 75% of the amount determined in the order being appealed against, before filing an appeal.

    The Appellate Tribunal may waive or reduce the amount to be deposited for admitting an appeal, after recording reasons for the same.

    Regards,

    Pinal Mehta

    Legal Tip – Food allowance not to be `basic wage’ for provident fund contributions

    15 Nov

    Food allowance not to be `basic wage’ for provident fund contributions

    Food allowance cannot be treated as cash value for food concession. Basic wage means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-

    (i)                The case value of any food concession

    (ii)             Any dearness allowance

    (iii)           Any presents made by the employer

    Regards,

    Pinal Mehta