Sep 262015
 

In a recent Judgment passed in 2015 LLR 893 MADRAS HIGH COURT Hon’ble Mr. V. Ramasubramanian, J. Hon’ble Mr. P.R. Shivakumar, J. W.A. Nos. 463 to 465/2013, D/–13-3-2015 Bharat Sanchar Nigam Limited vs. Union of India and Others , Employees except apprentices under Apprenticeship Act will be covered by the Provident Fund Act

Important synopsis of the said Judgement

  • The provisions of Employees’ Provident Funds and Miscellaneous Provisions act, 1952 include every person including apprentices or trainees within the purview of definition to the expression ‘employee’ except those engaged under the Apprentices Act, 1961.
  • Employer is also liable to pay EPF contributions in respect of Pre-Induction Training period of the trainees.

I am enclosing herewith the judgment copy for your kind perusal

Employees except apprentices under Apprenticeship Act will be covered by the Provident Fund Act

Courtesy: Prakash Consultancy Services

May 132015
 

Taxability of Provident Fund

Employees’ provident fund

Provident fund scheme is as a retirement benefit scheme. Under this scheme, a stipulated sum is deducted from the salary of the employee as his contribution towards this fund. The employer also generally contributes simultaneously an equal amount out of its pocket to the fund.

The contributions of employee and employer are invested in gilt-edged securities. Interest earned thereon is also credited to the provident fund account of employees. Thus, the credit balance in the provident fund account of an employee consists of employee’s contribution, interest on employee’s contribution, employer’s contribution and interest on employer’s contribution. The accumulated sum is paid to the employee at the time of his retirement or resignation.

In the case of death of an employee, the accumulated balance is paid to his legal heirs. Since the scheme encourages personal saving at micro level and generates funds for investment at macro level, Government provides deduction under section 80C.

Types of provident funds

  • Statutory provident fund.
  • Recognised provident fund.
  • Unrecognised provident fund.
  • Public provident fund

STATUTORY PROVIDENT FUND – Statutory provident fund is set up under the provisions of the Provident Funds Act, 1925.This fund is maintained by the Government and semi-Government organisations, local authorities, railway, universities and recognised educational institutions.

RECOGNISED PROVIDENT FUND – A provident fund scheme to which the Employee’s Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as PF Act,1952) applies is recognised provident fund.

As per PF Act,1952 any establishment employees 20 or more person is covered by the PF Act,1952(establishment employing less than 20 persons can also join the provident fund scheme if the employees want to do so). A establishment covered by the Pf Act, 1952 has the following two alternatives

Alternative available schemes Additional formalities to get approval of the Provident Fund Commissioner Status for income-tax purpose
1.Scheme of the Government set up under the PF Act,1952 No Such provident fund is recognised provident fund
2.Own scheme of provident fund A trust has to be created by the employer and employees to start own provident fund scheme.Funds shall be invested in accordance with the rules given under PF Act,1952. If the scheme satisfies certain rules given under PF Act,1952. It will get the approval of the PF Commissioner It is the recognised by the Commissioner of Income-tax in accordance with the rules contained under Part A of the Fourth Schedule to the Income-tax Act, it becomes recognised provident fund 

UNRECOGNISED PROVIDENT FUND – If a provident fund is not recognised by the Commissioner of Income-tax, it is known as unrecognised provident fund.

PUBLIC PROVIDENT FUND – The Central Government has established the public provident fund for the benefit of general public to mobilise personal savings. Any members of the public (whether a salaried employee or a self-employed person) can participate in the fund by opening provident fund account at any branch of the State Bank of India or its subsidiaries or a few nationalised banks.

A salaried employee can simultaneously become a member of employees ‘provident fund(whether statutory recognised or unrecognised) and the public provident fund. Any amount (subject to minimum of Rs. 500/- and maximum of Rs. 1,50,000/- per annum) may be deposited in this account. The accumulated sum is repayable after 15 years (it may be extended). This provident fund, at present, carries compound interest (tax-free) at the rate of 8.7% per annum.Interest is credited every year but is payable only at the time of maturity.

Tax treatment

  Statutory provident fund Recognised provident fund Unrecognised provident fund Public provident fund
1 2 3 4 5
Employer’s contribution to provident fund  Not treated as “income”of the year in which contribution is made Not treated as “income”up to 12 %of salary. Excess of employer’s contribution over 12%of salary is taxable Available Not treated as “income” of the year in which contribution is made Employer does not contribute 
Deduction under section 80C on employee’s contribution Available 

 

Available 

 

Not available 

 

Available 

 

Interest credited to provident fund 

 

Not treated as income of the year in which interest is credited  Not treated as “income” If the rate of interest does not exceed the notified rate of interest (i.e.,9.5%) of excess of interest over the notified rate is however,taxable Not treated as income of the year in which interest is credited

 

Exempt from tax

 

Lump sum payment at the time of the retirement of service Exempt from tax Exempt from tax in some cases. When not exempt provident fund will be treated as an unrecognised fund from the beginning See note 3 Exempt from tax

Notes:

  1. Accumulated balance payable to an employee participating in a recognized provident fund shall be exempt in the hands of employee in the following situations-
  • If the employee has rendered continue service with his employer for a period of 5 years or more.
  • If the employer has been terminated because of the certain reason which are beyond his control (e.g., ill health of the employee, discontinuation of business by employer, completion of project for which the employee was employed, etc.).
  • If the employer has resigned before completion of 5 years but he joins another employer (who maintains recognized provident fund and provident fund money with the current employer is transferred to the new employer).
  1. Lump sum payment received from unrecognized provident fund at the time of retirement/termination shall be taxable as follows-
  • Payment received in respect of employer’s contribution and interest thereon is taxable under the head “Salaries”
  • Payment received in respect of interest on employee’s contribution is taxable under the head ”Income from other sources”.
  • Payment received in respect of employee’s contribution is not chargeable to tax.
  1. If the accumulated balance becomes taxable due to non-fulfillment of the aforesaid conditions, the total income of the employee will be recomputed by the Assessing Officer, as if the fund was not recognised from the beginning.
  2. Interest credited to recognised provident fund is exempt from tax.
May 042015
 

TDS on withdrawal of fund from Employees Provident Fund

Meaning of Recognized Provident Fund

Under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952), certain specified employers are required to comply with the Employees Provident Fund Scheme, 1952 (EPFS). However, these employers are also permitted to establish and manage their own private provident fund (PF) scheme subject to fulfillment of certain conditions.

The provident funds established under a scheme framed under EPF & MP Act, 1952 or Provident Fund exempted under section 17 of the said Act and recognised under the Income-tax Act are termed as Recognised Provident fund (RPF) under the Act.

System of taxation of RPF

Under existing rule of income tax act, the withdrawal of accumulated balance by an employee from the RPF is exempt from taxation.

However, if the employee makes withdrawal before continuous service of five years (other than the cases of termination due to ill health, closure of business, etc.) and does not opt for transfer of accumulated balance to new employer same is taxable.

Computation of income for TDS

For ensuring collection of tax in respect of these withdrawals, rule 10 of Schedule IV-A provides that the trustees of the RPF, at the time of payment, shall deduct tax as computed in rule 9 of Schedule IV-A.

Rule 9 of Schedule IV-A of the Act provides that the tax on withdrawn amount is required to be calculated by re-computing the tax liability of the years for which the contribution to RPF has been made by treating the same as contribution to unrecognized provident fund.

Existing difficulty

However, at times, it is not possible for the trustees of EPFS to get the information regarding taxability of the employee such as year-wise amount of taxable income and tax payable for the purposes of computation of the amount of tax liability under rule 9 of the Schedule-IV-A of the Act.

Amendment made in Finance Act 2015

It is, therefore, proposed to insert a new provision in Act for deduction of tax at the rate of 10% on pre-mature taxable withdrawal from EPFS.

Highlights of amendment:

  • For benefiting employees having taxable income below the taxable limit, a threshold limit of Rs.30,000/- for applicability of this proposed provision is provided in the act.
  • For reducing the compliance burden of employees further, the facility of filing self-declaration for non-deduction of tax under section 197A of the Act shall be extended to the employees receiving pre-mature withdrawal.
  • An employee can give a declaration in Form No. 15G to the effect that his total income including taxable pre-mature withdrawal from EPFS does not exceed the maximum amount not chargeable to tax and on furnishing of such declaration, no tax will be deducted by the trustee of EPFS while making the payment to such employee
  • Similar facility of filing self-declaration in Form No. 15H for non-deduction of tax under section 197A of the Act shall also be extended to the senior citizen employees receiving pre-mature withdrawal.
  • However, some employees making pre-mature withdrawal may be paying tax at higher slab rates (20% or 30%). Therefore, the shortfall in the actual tax liability vis-à-vis TDS is required to be paid by these employees either by requesting their new employer or through payment of advance tax / self-assessment tax.
  • For ensuring the payment of balance tax by these employees, furnishing of valid Permanent Account Number (PAN) by them to the EPFS is a prerequisite.
  • In order to ensure the collection of balance tax by employees falling under 20% or 30% slab rate, it is also proposed that non-furnishing of PAN to the EPFS for receiving these payments would attract deduction of tax at the maximum marginal rate.
  • These amendments will take effect from 1st June, 2015.

Extracts of amendments

41. After section 192 of the Income-tax Act, the following section shall be inserted with effect from the 1st day of June, 2015, namely:—

“192A. Notwithstanding anything contained in this Act, the trustees of the Employees’ Provident Fund Scheme, 1952, framed under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 or any person authorised under the scheme to make payment of accumulated balance due to employees, shall, in a case where the accumulated balance due to an employee participating in a recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of the accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent.:

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees:

Provided further that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.

May 012015
 

PPF – Loans and Withdrawals

Different between Loan and Withdrawal

Loan From PPF
Withdrawal of PPF amount
  • Needs repayment
  • Burden of interest payable
  • Impacts future loan eligibility
  • Impacts credit ratings
  • Repayment is not required
  • Impacts interest income in future

When to withdraw money / take loan

You should avail such loans / withdrawal facilities only when you are falling short of your finance and do not have any other option to achieve an important life goal such as child’s higher education or daughter’s marriage etc.

Such loans should not be availed to improve your life style or to buy a costly gadget. After all, this is the money that you have kept aside for your retirement.

Extracts of rules facilitating loan from PPF account

The PPF rulebook states it as follows:

“Notwithstanding the provisions of paragraph 9, any time after the expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made, a subscriber may, he so desires, apply in Form D or as near thereto as possible, together with his pass book to the Accounts Office for obtaining loan…”

Who can avail loan facility

You can take a loan from the fund in case of need. You don’t have to wait till you become eligible for withdrawals from the account.

In simple terms, the following are the steps to see how much loan you can avail.

  • Say you opened your PPF account in August 2014.
  • The end of the financial year when the initial subscription was made is March 31, 2015.
  • The expiry of one year from the end of that financial year is March 31, 2016.
  • So from March 31, 2016, until 5 years from March 31, 2015, that brings us to March 31, 2020, you are entitled to apply for a loan against your PPF balance.

Therefore to simply put, from the second year of opening the PPF account to the sixth year, as a PPF account holder you can take a loan

How much loan you can take is defined as follows:

Rules

“… A subscriber may, he so desires, apply in Form D or as near thereto as possible, together with his pass book to the Accounts Office for obtaining loan consisting of a sum of whole rupees not exceeding twenty five per cent of amount that stood to his credit at the ends of the second year immediately preceding the year in which the loan is applied for.”

However, the loan has to be repaid with interest at 2% per annum within 36 months, either in lump-sum or in installments.

It is noteworthy that now for a loan taken by the subscriber of a PPF account on or after December 1, 2011 a rate of interest of 2% per annum is levied.

You can take a second loan against your PPF account before the end of your sixth financial year, but your second loan can be taken only once your first loan is fully settled.

 Withdrawals from my PPF account

Yes, you can make one withdrawal per year starting from your seventh year (through an application vide Form C). The first withdrawal can be done after the expiry of 5 full financial years from the end of the year in which your initial subscription was made.

The amount of withdrawal will be limited to 50% of the balance at credit at the end of the fourth year immediately preceding the year in which the amount is to be withdrawn, or the balance at the end of the preceding year, whichever is lower, as per the PPF rulebook.

Thereafter, you can make one withdrawal per year.

Example,

if you opened your PPF account on April 1, 2014, you can make your first withdrawal after April 1, 2020, and the amount of withdrawal will be limited to 50% of the balance as on – March 31, 2016, or the balance as on – March 31, 2019, whichever is lower; subject to loan taken on your PPF account.

Apr 302015
 

Union cabinet approves continuation of minimum pension of Rs 1,000 per month

The Union cabinet on Wednesday approved continuation of the minimum pension of Rs 1,000 per month beyond 2014-15 on a perpetual basis, benefiting about 20 lakh retirees covered under the pension scheme run by the Employees’ Provident Fund Organisation. Providing a minimum pension of Rs 1,000 per month is an effort to provide meaningful subsistence to pensioners who have served in the organized sector,” the government said in a statement.

The cabinet also approved Rs 850 crore per year grant to meet the liability on a tapering basis, it said.

The Employees’ Pension Scheme, 1995 (EPS), which was effective from September 2014, had expired on March 31, 2015, after which EPFO had restored to the earlier provision that had led to widespread protests from trade unions.

The UPA-II government had in February 2014 accorded approval to the proposal for ensuring a minimum pension of Rs 1,000 per month for the pensioners of EPS for 2014-15 and provided a budgetary support of Rs 1,217.03 crore.

However, the proposal could only be implemented by the BJP-led NDA government with effect from September 1 last year after necessary amendments to the EPS Act.

reproduced from economic times

Sep 152014
 

Impact on employees of Enhancement of wage ceiling from Rs. 6500/- to Rs. 15000/-

Vide notification dated 22.08.2014 Ministry of Labour and employment has enhanced the ceiling of wage from Rs. 6500/- to Rs. 15000/- for the computation of contribution to Provident fund for both employer and employee contribution.

Extract of the Notification

608(E)- In exercise of powers conferred by section 6A read with sub section (1) of section 7 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), the central government hereby makes the following, further to amend the Employees’ Provident Funds Scheme, 1952, namely:-

  1. (1) This Scheme may be called the Employees’ Provident Funds (Amendment) Scheme, 2014.
    (2) It shall come into force on and from the 1st day of September, 2014.
  2. In the Employees’ Provident Funds Scheme, 1952,-

(a)    In paragraph 2, in clause (f), in sub-clause (ii), for the words “six thousand and five hundred rupees”, the words “fifteen     thousand rupees” shall be substituted;
(b)   In paragraph 26, in sub-paragraph (6), for the word “six thousand and five hundred rupees” the words “fifteen thousand rupees” shall be substituted;
(c)    In paragraph 26A, in sub-paragraph (2), in the proviso, for the words “six thousand and five hundred rupees” wherever they occur, the words “fifteen thousand rupees” shall be substituted.

[F No.- S-35012/1/2012-SSII]

609(E)- In exercise of powers conferred by section 6A read with sub section (1) of section 7 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), the central government hereby makes the following, further to amend the Employees’ Pension Scheme, 1995, namely:-

  1. (1) This Scheme may be called the Employees’ Pension (Amendment) Scheme, 2014.
    (2)    It shall come into force on and from the 1st day of September, 2014.
  2. In the Employees’ Pension Scheme, 1995 (hereinafter referred to as the principal Scheme), in paragraph 3, in sub- paragraph 2, in the proviso, for the words “rupees six thousand and five hundred”, whenever occur, the words “fifteen thousand rupees” shall be substituted.
  3. In the principal scheme , in paragraph 6, in clause (a), after the words, figures and letter “or 27A of the Employees’ Provident Fund Scheme, 1952”, the words “and whose pay on such date is less than or equal to fifteen thousand rupees” shall be inserted.

Download Circular

Impact on Employees

On Take Home

As a result of the above notification every employee whose salary is less than Rs. 15000 is comes under the mandatory requirement of contribution to the Provident fund.

Earlier the limit was Rs. 6500/- PM and employee was required to pay Rs. 780/- as contribution through his employer, and employees whose salary was in excess of Rs. 6500/- was not required to contribute to the fund.  The same provision is continued in the above notification.

Through this notification, the department has widened the scope Provident Fund by enhancing the salary limit. As a result of the notification employees getting salary more than Rs. 6500/- and up to Rs. 15000/- also comes the umbrella of Provident fund. The above enhancement will reduce their take home ranging from Rs. 781/- to Rs. 1800/- depending upon the salary bracket in which falls.

However, this step will encourage saving and investment in the economy. Therefore, this will positively impact employee in terms of enhances capital receipt at the time of retirement.

Impact on Computation of Taxable Income

The above contribution will be eligible for deduction u/s 80C under the income tax Act 1961.

Impact on Employers Cost:

As a result of the above amendment in the provisions of Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, employer cost will increase from 780 to 1800 depending upon the slab of the employees.

Download Example in Excel Format

Mar 262014
 

Enclosed is the Circular in regards to Mandatory registration of Digital Signature Certificate (Class 2 and above) of the authorized signatories of the establishments (having more than 100 ECR members) with EPFO.

Download Circular

Sep 192013
 

Digital Signature for Employee Online Transfer Claim Portal

The transfer of the EPF accounts is now possible online for all the EPF subscribers. The form for the same is made available on Online Transfer Claim Portal. The submission of claims for transfer of Provident Fund Account of the Employee Provident Fund Organization members is now possible online. The employers are supposed to get their email ids registered on the portal. For the launch of this facility, the EPFO has introduced a claim form for the purpose.

The Employees Provident Fund Organization has directed its over 120 field offices to delegate a nodal officer for the purpose of registration of digital signatures of the firms. Firms may upload their digital signatures online through the EPFO website(WWW.epfpindia.gov.in) on the online transfer claim portal.Depending on how many people register their digital signatures, will determine the success of online transfer of PF account as the digital signatures are a prerequisite for providing the facility.

The revised transfer claim form is verified by the previous employer or the present employer before submission. Earlier the form could be verified only by the previous employer alone. The members can apply for the transfer through their employers.

A central clearance house has been set up for the purpose of application of PF withdrawals and transfer claim settlements by the subscribers. The service has made the transfer process easy, convenient and less time consuming, and the 13 lakh subscribers every year will now benefit from this service. Online Testing of the service has yielded positive results and the outcomes have proved its success.

Sources have informed that the live online testing of the service was planned prior to its launch. And for this purpose workers from selected organizations will be allowed to transfer their online claims. The IT sector constitutes 80 percent of the transfer claims, and as per the data available, the body has managed 6.9 lakhs organizations in 2011-12. For this year, i.e. 2013-14, the expected claims are estimated to come up to 1.2 crores including 13 lakh PF claims.

According to the citizen charter, the transaction process should be completed in 30 days. But this time, with the new online transfer service coming up, the body has decided to complete the transfer of PF account in 3 days.

Mar 052013
 

EPF interest rate increased to 8.5% for the year 2012-13

EPF has come up with a mount in interest rate, taking it to 8.5%  for the year 2012-13. The interest rate for the new fiscal year is 8.5% , as compared to the 8.25% in the previous year. As one basis point equals 0.01%, the 50 million subscribers of the employees’ Provident Fund Organisation will earn 8.5% with the 25 basis point increase. The trade unions’ demand of 8.6% interest still remains unfulfilled . The Central Board Of Trustees (CBT) explains that with the proposal of paying 8.6% interest , they would be left with a Rs 240 crore deficit, while  the 8.5% rate allows a surplus of Rs. 400 crore.

But , the trade unions whose proposal was not accepted, have argued upon as to if the banks pay 9-10% and the government pays up to 8.8% , then why only 8.5% is being paid. Albeit there is a   rise from previous year’s 8.25 to 8.5%,it is much less than the PPF rates or Bank fixed deposits rates.  The previous years’ interest rate has been a considerable decline from 9.55 in 2011-12 to 8.25% in 2011-12. The EPF rates in 2011-12 were decreased to 8.23% from the 9.25%  in 2010-11,while there was an increase in PPF rates from 8.6% in 2012-12 to 8.8% in 2012-13. The CBT  has relaxed the rules in order to permit the EPFO invest in corporate bonds up to 25 year maturity from the present 15 years.

Also, the EPFO has allowed the fund manager to invest in debt market in order to improve earnings. The CBT commissioner has stated that a bit of relaxation in the rules is done so as to ease investment in debt market.

The EPFO can invest in the following seven firms along with the investments in bonds of PSUs.

  • HDFC Bank Ltd
  • ICICI Bank Ltd
  • Axis Bank Ltd
  • LIC Housing Finance Ltd
  • IL&FS Ltd
  • IDFC Ltd
  • Housing Development Finance Corp. Ltd.

The EPFO has come up to the decision to invest in AA or AAA rated bonds of companies that have a minimum net worth of Rs 3000 crore with a 15% dividend paying track record. However, they will refrain from investing in stock market as decided by the organization.

The new investment pattern is expected to yield higher returns, as per the central provident fund commissioner.