What is Provident Fund?
Provident fund (PF) is a mandatory, government-managed retirement savings scheme for all the salaried employees employed in a corporate organization. The workers give a portion of their salaries to the provident fund, and employers must mandatorily contribute such a portion towards the EPF (Employee’s Provident Fund) account of their employees. Such contribution to the fund is then entirely held and managed by the Government and eventually withdrawn by the retired employees in the event of their retirement. However, in some cases, the fund also pays out to disabled employees who cannot work. The EPF Organization of India has instructed all employers to contribute a portion of their employee’s salary into the provident fund.[1]
Moreover, the employers are also mandated to contribute their part of the salary to the provident fund. The primary goal behind this PF (Provident Fund) scheme is to financially ensure the employees and the retirees during their retirement or in the event of any disability. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952) governs the rules and regulations and other penal provisions regarding the withdrawal and transfer of PF.
Utility of Provident Fund
The benefit of the EPF is manifold. It is equally important to highlight the utilities of the EPF in order to provide insight into public awareness that could accelerate the creation of PF fund procedure and could stabilise the employee’s investment and retirement planning. Some of the key benefits of holding a PF account are as follows:
1. Tax Exemption
Under the provisions of Section 80C of The Income Tax Act 1961, an employee receives an income tax exemption on a PF contribution of up to 1.5 lakh rupees in a financial year. Therefore, the employees are exempted from paying tax on the interest earned from their PF fund. The current rate of interest prevalent is 8% around. However, even in the event of a dormant PF fund that extended more than three years, the employees shall continue to earn interest. Besides, in the event of withdrawal of the provident fund amount after 5 years of a continued period of service, such amount becomes completely tax exempted unless, in such 5 years, the employee gets terminated from his service.
2. Loan Benefits
A PF account holder earns the eligibility to hold a loan against their PF balance, and the PF loan interest rate levied shall only be 1%. However, if there are any financial emergencies within 36 months of loan disbursal, the loan has to be repaid. Section 68-BB, the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952), states the withdrawal provisions for repayment of loans in exceptional cases.
3. Retirement and pension benefits
To provide financial security to retiring employees, the Government introduced two essential elements in the Employment Provident Fund. They are:
- Provident Fund
- Pension Scheme of Employees.
As per the EPF Act, both the employer and employee must contribute 12% of their remuneration. The employees’ contribution is diverted towards the Employment provident fund, and out of the employer’s 12% contribution, 8.22% diverts towards the Employee Pension Scheme. The rest amount is then transferred to the employee’s provident fund account.
The employee then receives the contributed amount after retirement in the form of a pension. This pension amount is associated with several years of service and remuneration withdrawn by the employee at the time of employment.[2]
4. Insurance Provisions
In the event of an employee not receiving any organized group insurance scheme, the particular organization of the employee has to produce 0.5% of the basic monthly salary of that employee towards the premium for a life insurance policy of that particular employee. The Government has assured such benefits under the Employees Deposit Linked Insurance Scheme (EDLI).[3] In accordance with the benefit, the registered nominee in the event of the death of an insured employee in the course of his service shall receive a handsome amount of insurance. However, the minimum insurance amount limit from Rs.1.5lakh has been increased to Rs. 2.5lakh and Rs. 6 lakh is the maximum insurance amount an employee is eligible to receive.[4]
5. Premature Withdrawal
Provident Fund being a social security scheme, the money could be withdrawn prematurely. Nevertheless, Employee Provident Fund Organization has imposed certain restrictions on early withdrawal of whole provident fund amount to benefit employees even after retirement. However, to meet specific needs, an employee can withdraw a partial provident fund amount or withdraw in the event of any emergency, including medical emergency, marriage purposes, to repay education loan, and home loan. Employees can withdraw up to 36 times the monthly salary cum Dearness Allowance in the home renovation or construction. Moreover, an employee can take advantage of PF in the event of major surgery or severe disease. In this case, the employee can withdraw up to 6 times his monthly salary or entire provident fund amount.
6. Home Advances Benefits
Section 68-B of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952) states the withdrawal provisions for purchasing a residential property. Employees interested in investing in buying and constructing a house are eligible for special benefits. As per the provisions of the EPFO, an employee can utilize upto 90% of the PF amount to acquire, construct or make down payment to purchase any residential property. However, these benefits are subject to specific terms and conditions.[5]
Provident Fund (PF) Withdrawal/Transfer Procedure
The EPF withdrawal procedure could be effectuated by two processes:
- Online Procedure
- Physical Application Procedure
Let’s discuss the two procedures in detail:
Online Procedure
The online withdrawal facility, besides being feasible and time-saving, holds several other benefits. For conducting the online PF withdrawal process, Form 19 and Form 10C is required. However, to initiate the PF transfer process, Form 13 is required. For the unemployed, PF could be withdrawn only after the passage of 60 days from the last working day. Therefore, when the purpose of the withdrawal is unemployment, the individual requires attestation from a gazetted officer. The online procedure for withdrawal is initiated through the UAN (Universal Account Number) portal. Subsequent to this, online claims are initiated through the “online services” menu. The employee has to confirm the KYC that includes Aadhaar number, PAN number, Bank details, and the IFSC Code of the concerned bank and submit the same. The online application for the EPF withdrawal of an employee has to be effectuated through the EPF portal; wherein it is mandatory to make sure that the Universal Account Number (UAN) is in an active state, and the mobile number used for activating the UAN is functional at the time of processing the application. The UAN is required to be linked with the KYC, i.e. Aadhaar, PAN, bank details, and the IFSC code of the specific employee. In the event of meeting these conditions, there is no need for the previous employer to attest to the withdrawal application.
Physical Application Procedure
To withdraw PF through the physical application procedure, it is necessary to drop into the respective jurisdictional Employee Provident Fund Organization office and commence the withdrawal process through a due submission of a Composite Claim Form (aadhar/non-aadhar). It is to be noted that there are two types of Composite Claim Form which is usually Aadhaar and Non-Aadhaar. The Aadhaar Composite Claim Form does not require any attestation from the employer. In contrast, while opting for the Non-Aadhaar Form, the same has to be attested by the employer before submitting to the jurisdictional EPFO office.
Mandatory Requirements for EPF Withdrawal Process
There are certain conditions that an employee shall meet in order to be eligible for EPF withdrawal. They are as follows:
1. An employee can withdraw the Provident Fund only after retirement. However, Section 68-NNN of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952) states that an early withdrawal comes into effect only when the employee has attained an age limit of 55 years and beyond.[6]
2. In cases of medical urgency, higher education and house purchase or construction works, partial withdrawal of EPF could be approved.
3. 90% of the Provident Fund could be withdrawn by an employee 1 year before retirement. Section 68-NN of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952) states the withdrawal provisions within one year before retirement.
4. In the event of unemployment before retirement that is subject to retrenchment or lock-down, an employee could be eligible to withdraw the EPF corpus.
5. In accordance with the new rule, after 1 month of unemployment, 75% of the corpus is eligible to be withdrawn. However, the remaining corpus shall be transferred to the employee’s EPF account subsequent to employment status.
6. Approval of the employer is not required for withdrawing EPF, and the same could be accomplished at ease via online by linking the UAN and Aadhar of the employee with the EPF account. However, an online claim requires an active UAN number, EPF database seeded with PAN and Aadhar details and Bank details of the employee linked with his UAN.
Legal Framework of Provident Fund
PF Withdrawal Process is governed by the Employees’ Provident Funds and Miscellaneous provisions Act, 1952 (EPF & MP Act, 1952). In accordance with the Act’s provisions, every employee is eligible for becoming a member of PF who is employed in an establishment. The employers shall mandatorily file the consolidated annual contribution statement through Form-6A and Form 3A.[7]Section 7Q of the Act states that in the event of default in payment of dues by the employer, the defaulted employer shall be liable to pay simple interest at 12% per annum or any other rate as may be specified on the contribution amount that remains due from the date on which it was required to be paid till the date of its actual payment.
Section 14 (1A) of EPF & MP Act 1952 states the provisions for penalties in the event of default in contributing as specified under Section 6 of EPF & MP Act 1952. The Section enumerates the provisions for imprisonment for a term that may extend to three years but not less than one year with or without a fine of ten thousand rupees. However, for any adequate and special reasons to be recorded in the judgment, the Court may commute the sentence of imprisonment for a shorter term. Section 14AB of EPF & MP Act 1952 specifies thatan offence in regard to the default in making payment of contribution by the employer is punishable under this Act and therefore shall be cognizable. Such a defaulted employer is liable to be arrested without any warrant.
Section 14B of EPF & MP Act 1952 states that in the event of default in making the payment of contribution by an employer; the Central Provident Fund Commissioner or such other officer having such authority holds the right to recover from the employer by way of penalty such damages, not exceeding the amount of arrears. However, a reasonable opportunity of being heard shall be given to such defaulted employer. Furthermore, the criminal procedure code 1973 also entails penal provisions.[8]Section 110 of The Code of Criminal Procedure, 1973 states that in the event of default in compliance with this Act and in addition to other Acts, Magistrate may ask for a show cause from the defaulted person that why the defaulter shall not be directed to execute a bond with sureties for his good conduct and therefore, for such period, not exceeding three years, as the Magistrate may think fit.[9]
Section 14A(1) of EPF & MP Act 1952 states that if the person committing an offence under the concerned Act or scheme is a juristic person, e.g. a company; then each person, who were in charge of and was accountable to the company for the conduct of its business at the time of the commission of the offence, as well as the company individually, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The EPF and EPS Schemes are legally protected under Section 10 of the EPF & MP Act 1952. The EPF is considered an essential element of social and financial security and is provided special legal protection, more specifically to foster public awareness and encourage the employees regarding the PF withdrawal process. Moreover, the EPF benefits allow an employee to make withdrawals to tide over certain kinds of extremities.
[1]Sayaji Mills Ltd. v. R.P.F.C. AIR 1985 S.C.323
[2]Gitaben Arvind Kumar Sheth v. Union of India [(1995) 2 LLN 226]
[3] The Employees’ Deposit- Linked Insurance Scheme, 1976
[4]Khemchand Motilal Tobacco Products Ltd. v. Union of India [(1995)1 LLN 1002]
[5]Jayakar Rao N. Shetty v. R.P.F.C. [(1993) 2 LLJ 78]
[6]Bhaskara Ceramic Industries v. R.P.F.C. A.P.[1991 Lab. I.C. 1138(A.P.)]
[7]Shree Changdeo Sugar Mills & Ors v. Union of India & Anr. 2001(2) SCC 519
[8]The Employees’ Provident Funds and Miscellaneous provisions Act, 1952
[9] The Code of Criminal Procedure, 1973
