Asok Nadhani-Provident Fund Act 1952

Employees Provident Fund

by Asok Nadhani

1.1 Meaning

i.      The Employee’s Provident Fund constitutes a portion of income saved by the employee from his present earnings along with additional contribution by his employer. This Fund provides a social security in future for a rainy day.

ii.    The term provident fund is not defined in the Provident Fund act. The dictionary meaning of ‘Provident’ is to provide for future needs (especially old age needs).

1.2 Object of the Act

i.      The object of the Act is to provide for the institution of provident funds family pension and deposit-linked insurance schemes for employees in factories and other establishments.

ii.    The principal duty is laid upon the employer to [Jyothi Home Industries v. Regional Provident Fund Commissioner]:

-         put the Employees' Provident Fund and Family Pension Schemes into operation

-         to make contributions of their and employees' share to the Funds

-         deduct employees share from their current earnings.

1.3 Applicability of the Act

1.    The Act applies to whole of India (Sec. 1(2))

It applies to a factory engaged in any industry specified in Schedule I, or other class of establishments as notified by Central Govt, employing 20 or more persons. [Springdales School v. Regional Provident Fund commissioner]

2.    The Act is also applicable to such establishment employing less than 20 person if :

1. The Central Government makes it applicable by notification in the Official Gazette.
2. If the employer and the majority of the employees of the establishment applies to the Central Provident Commissioner to cover the establishment under the Act, and the Commissioner issues a notification in the Official Gazette to enforce such Act.

3.     An establishment to which this Act applies must continue to be governed by this Act, even if the number of the persons employed therein falls at any time below 20. [Annamma Iype v. Regional Provident Fund Commissioner], [M/s S.K. Nasiruddin  BeediMerchant  Ltd. v. Central Provident Fund Commissioner]

4.     The provision of the act is applicable to all the departments and branches of the establishment irrespective of their location and shall be treated as that of the same establishment. (Sec. 2-A) [Noor Niwas Nursery Public School v. Regional Provident Fund Commissioner], [Ebrahim Currim and Sons v. Regional Provident Fund Commissioner, Maharashtra and Goa], [Sunder Transport v. Regional Provident Fund Commissioner], [Eddy Current Contracts (India) Ltd. v. Reg. Provident Fund Commissioner]

5.     The Central Government may add any industry to Schedule I to apply the provision of the Act. (Sec.4)

1.4 Non-applicability of the Act (sec. 16)

i.      The Act does not apply to:

1. Establishment registered under the co-operative Society Act, 1912.
2. Establishment controlled by Central or State Government, or any employees of the establishment entitled to benefit of contributory provident fund or old age pension.
3. Newly set up establishments exempted for 3 years plus 2 years extension.
4. Establishment exempted by Appropriate government due to financial or any other reason.

ii.    The Central Government may exempt prospectively or retrospectively some of the establishments or class of establishments from the operation of this Act having regard to the financial position of the establishment (sec. 16(2)). [Bikaner Cold Storage Co. v. R.P.F. Commr.], [R. Ramakrishna Rao v. Stale of Kerala]

1.5 Application of Act to Common Provident Fund (Sec. 3)

Where an establishment shared a common provident fund with another establishment immediately before the Act came into force, the Central Government may direct that the provisions of this Act shall also apply to such other establishment.

1.5.1 Schemes of the Act

The Act function under 3 schemes :-

1.     Employee provident fund scheme.

2.     Employee pension scheme.

3.     Employees deposit linked Insurance scheme.

1.6 Features of Employees Provident Fund Scheme

a.     Members

Every employee (other than exempted employee) working in an establishment covered by the pension of the Act whose salary / wage does not exceed Rs.5,000 p.m. shall be eligible to join provident fund scheme. Such employee become member of the fund from the date of following the establishment.

b.      Contribution

i.      Both the employer and employee each contribute @ 10% of Basic Wage + D.A including cash value of food concession & retaining allowance for the whole month, irrespective of pay period. The employee may contribute more than 10%. However, the Central Government may increase the rate from 10% to 12%.

ii.    The employers are not entitled to deduct the employer’s contribution from the wages of the member employees.

iii.   Employee’s contribution shall be recoverable by means of deduction from wages of the member.

iv.   Payment of contribution is a statutory liability of the employers.

c.     Investment

The amount in the fund so established is invested by the Board of Trustee in accordance with the investment pattern approved by the government. The members are not entitled to the interest on the money so invested.

d.    Advances and Withdrawals

Advances and withdrawals from the fund is allowed upto a specified limit.

 1.7 Definitions (Sec. 2)

1.7.1 ‘Appropriate Government’ (Sec. 2 (a))

It refers to:

-         Central Government in relation to establishment controlled under it or connected with (a railway company, a major port, a mine or an oilfield or a controlled industry) or branches in more than one State.

-         State Government In relation to any other establishment State Government

1.7.2 Authorised officer (Sec. 2 (aa))

Authorised officer means the Central Provident Fund Commissioner, Additional Central Provident Fund Commissioner, Deputy Provident Fund Commissioner, Regional Provident Fund Commissioner or such other officer as may be authorised by the Central Government.

1.7.3 ‘Basic wages’ (Sec. 2 (b))

It refers to all emoluments which are earned by an employee while on duty, leave, holidays with wages paid or payable in cash.

But does not include –

i.      the cash value of any food concession,

ii.    any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance,

iii.   any presents made by the employer. [Manipal Academy of Higher Education v. Provident Fund Commissioner], [Regional  Provident Fund Commissioner v. Vivekananda Vidya Mandir], [Hindustan Lever Employees Union v. Regional Provident Fund Commissioner], [Hindustan Lever Employees Union v. Regional Provident Fund Commissioner]

1.7.4 Contribution (Sec. 2 (c))

It means a contribution payable in respect of a member, under the Employees' Provident Fund Scheme or Employees' Deposit-linked Insurance Scheme.

1.7.5 Controlled industry (Sec. 2 (d))

It means any industry the control of which by the Union has been declared to be expedient in the public interest (like Industries specified in the First Schedule of the Industries (Development and Regulation Act, 1951).

1.7.6 Employer (Sec. 2 (e))

It means–

1.     in relation to factory:

i.      the owner , occupier or its agent (or the legal representative of deceased owner or the occupier)

ii.    the person named as a manager of the factory under the Factories Act

2.     in relation to any other establishment :

i.      the person who, or the authority which, has the ultimate control over the affairs of the establishment.

ii.    the manager, managing director or the managing agent, to whom the affairs of establishment are entrusted. [M. Shivram v. Enforcement Officer, Employee's Provident Funds, Shimoga], [Katari Colouring Factory v. Regional Provident Fund Commissioner], [Srikanta Dutta Narsimharava Wodiyar v. Enforcement Officer, Mysore]

1.7.7 Employee (Sec. 2(f))

a.     It means any person employed (directly or through a contractor) in an establishment for wages in any kind of work (manual or otherwise), or an apprentice (other than apprentice under the Apprentice or under standing orders of the establishment).

b.      He may get his wages directly or indirectly from the employer. [Prakesh D. Shah v. Union of India], [Om Roller Flour Mills v. Union of India]

1.7.8 Exempted employee (Sec. 2 (ff))

It means an employee to whom a scheme would, but for the exemption granted under section 17, have applied.

1.7.9 Exempted establishment (Sec. 2 (fff))

It means an establishment in respect of which an exemption from operation of the Act has been granted under Sec. 17, from the application of any or all of the provisions.

1.7.10 Factory (Sec. 2 (g))

It means any premises (including the precincts thereof), in any part of which a manufacturing process is being carried on (with or without the aid of power).

1.7.11 Fund (Sec. 2 (h))

It refers to the provident fund established under the Employees' Provident Fund Scheme.

1.7.12 Industry (Sec. 2 (i))

It means any industry specified in Schedule I (other industry added to the Schedule by notification under section 4).

1.7.13 Insurance Fund (Sec. 2 (i-a))

It means the Deposit-linked Insurance Fund established under Sec. 6-C (2).

1.7.14 Insurance Scheme (Sec. 2 (i-b))

 It means the Employees' Deposit-linked Insurance Scheme framed under Sec. 6-C (l).

1.7.15 Manufacture or Manufacturing process (Sec. 2(t-c))

It means any process for making, altering, repairing, ornamenting, finishing, packing, washing, cleaning, breaking up, demolishing or otherwise treating or adapting an article or substance with a view to its use, sale, transport, delivery or disposal.

1.7.16 Member (Sec. 2 (f))

'Member' means a member of the provident fund established under the Employees' Provident Fund Scheme.

1.7.17 Occupier of a factory (Sec. 2 (k))

'Occupier of a factory' means the person who has been entrusted or has an ultimate control over the affairs of the factory.

1.7.18 Pension Fund (Sec. 2 (kA))

"Pension Fund" means the Employees Pension Fund established under Sec. 6-A (2).

1.7.19 Scheme (Sec. 2 (I))

It means the Employees' Provident Fund Scheme.

1.7.20 Superannuation (Sec-2 (ll))

"Superannuation" means a member of a Pension Scheme who has attained the age of 58 years.

1.7.21 Tribunal (Sec. 2 (m))

Tribunal' means the Employees' Provident Funds Appellate Tribunal constituted under Sec. 7-D.

1.7.22 Dearness allowance (Sec. 6)

'Dearness allowance' is deemed to include also the cash value of any food concession allowed to the employee.

1.7.23 Retaining allowance

It means an allowance payable to an employee during any period in which the establishment is not working.

1.8 Employees' Provident Fund

1.8.1 Formation of the Fund (Sec. 5)

The Central Government has the power to form the Employees Provident Fund Scheme for establishment of Provident Fund for the employees of the establishment to which the Act applies to. The Fund shall vest in, and be administered by the Central Board constituted under Sec. 5-A [Sec. 5 (1-A)].

1.8.2 Contributions (Sec. 6)

i.      The statutory rate of Employer’s as well as Employee’s contribution is 10 percent. For scheduled industries, the rate is 12 per cent, applicable for person employed directly or through contractor. The rate of employee’s contribution can be increased by an employee at his will (the employer shall not be under an obligation to pay higher contribution).

ii.    The contribution of the employer towards the Employee’s Provident Fund is compulsory and legally enforceable as soon as the scheme became applicable to them. [Changdeo Sugar Mills v. Union of India], [P.F. Inspector v. Ram Kumar]

1.8.3 Calculation

a.     The calculation of the contribution is done on:

-         Basic wages

-         Dearness Allowance (including the cash value of any food concession)

-         Retaining allowance (if any),

actually drawn during the whole month whether paid on daily, weekly, fortnightly or monthly basis.

b.    The contribution has to be rounded off to nearest rupee.

1.9 Employees' Pension Scheme and Fund (Sec. 6A)

The Central Government has the power to frame Employees' Pension Scheme and establish a Pension Fund. The Fund shall vest in, and be administered by, the Central Board as specified in the Pension Scheme. [Ram Singh v. State of Uttar Pradesh]

1.9.1 Purpose of the Pension Scheme

The purpose of Employees’ Pension Scheme is to provide:

i.      Superannuation pension, retiring pension or permanent total disablement pension to the employees of any establishment to which this Act applies.

ii.    Pension payable to the beneficiaries of such employee (widow or widower’s pension, children pension or orphan).    

1.9.2 Pension Fund

On framing the Pension scheme, the following sums are to be paid from time to time in the Pension Fund in respect of an employee enlisted under the Pension Scheme:

i.      sum of Employer’s contribution not exceeding 8.33 % of pay (i.e. basic wages, dearness allowance and retaining allowance, if any)

ii.    such sums as are payable by the employer of an exempted establishment under Sec. 17 (6)

iii.   the net assets of the Employees' Family Pension Fund as on the date of the establishment of the Pension Fund

iv.   any sum contributed by Central Government as approved by the Parliament towards the Pension Fund.

v.     The Pension Fund shall vest in and administered by Central Board constituted u/s 5.

1.9.3 Features of Family Pension Scheme

1.     Members: This scheme is compulsory for members of family pension scheme, 1971 and subscribers of PF Scheme from 16th November 1995.

2.     Contribution: Upto 15th November 1995, employers contribution to PF shall remain in PF. Thereafter, from employer’s contribution, 8.33% shall be remitted to Pension Fund and remaining 1.67% to be remitted Provident Fund.

Central Government shall contribute @ 1.16% of the pay of the member.

For the purpose of computing the contribution of employer & employee, employee’s pay would be limited to Rs.5,000.

3.     Administration: The Central Board of Trustee shall administer the Pension Scheme.

4.     Qualifying Condition: For receipt of pension:

i.      Service duration – Atleast 10 years (1 month in case in case of death or disablement).

ii.    Age --- 58 Years.

iii.   Service required for voluntary retirement –20 Years.

5.     Benefits:

i.      Minimum Pension:­

-        For age between 48 to 53 years - Rs.600 p.m. (for 24 years of service).

-        For age 53 and above - Rs.500 p.m. which shall be reduced to a maximum of Rs.325 and Rs.265 p.m. if past service is less than 24 years.

-        For service beyond 16.11.95 pension shall be calculated according to formula.

ii.    On super annuation:­

-        If the service tenure is 33 years - 50% of average salary or last 12 months (Basic + DA).

-        If the service tenure is more than 33 years between 50% to 60% of average salary.

iii.   Reduced Pension:­

If age is less than 50 years - No pension.

Thereafter, for every year falling short of 58 years, 3% per year shall be reduced.

iv.   Commutation of Pension:­

Upto1/3rd of the pension may be commuted, so as to receive 100 times the monthly pension. Balance pension would be paid on monthly basis.  For example a person eligible for monthly pension of Rs.600, may commute to (1/3 x 600) x 100 = Rs.20,000. The Balance 2/3^rd i.e. Rs.400 per month would be paid as monthly pension.

1.10 Employees' Deposit-Linked Insurance Scheme & Fund

The Employees’ Deposit-linked Insurance Scheme (called Insurance Scheme) was introduced by the Amendment Act of 1976 (Sec. 6C).

1.10.1 Insurance Scheme

The Central Government may frame Employees' Deposit-linked Insurance Scheme for the purpose of providing life insurance benefits to the employees of any establishment to which this Act applies [Sec. 6-C (1)].

1.10.2 Insurance Fund

After the Insurance Scheme has been framed, the Central Government shall establish a Deposit-linked Insurance Fund (known as Insurance Fund). The Insurance Fund shall vest in the Central Board and be administered by it in such manner as may be specified in the Insurance Scheme.

1.10.3 Quantum of Contribution

i.      The employer shall pay from time to time in respect of every such employees an amount not exceeding 1 per cent of the aggregate of the basic wages, dearness allowance, cash value of concessional lunch and retaining allowance (if any) as the Central Government may specify. [Sec. 6-C (2)]

ii.    The employer shall also pay into the Insurance Fund, as determined by the Central Government to meet expenses for administration of the Insurance Scheme (other than the expenses towards the cost of any benefits provided by or under that Scheme) not exceeding 1/4^th of the employer’s contribution to the Insurance Fund). [Sec.6-C (4) (a)]

iii.   The Insurance Fund shall vest in the Central Board and be administered as specified in the Insurance Scheme. [Sec. 6-C (5)]

1.10.4 Effect of the Insurance Scheme

Any of its provisions may take effect either prospectively or retrospectively on such date as specified in that Scheme. [Sec. 6-C (7)]

1.10.5 Presentment of Schemes before Parliament (Sec. 6-D)

Every notification issued under Sec. 7 (1) and Scheme framed under Sec. 5 (Employees' Provident Fund Scheme), Sec. 6-A (Employees' Pension Scheme) and Sec. 6-C (Employees' Deposit-linked Insurance Scheme) shall be laid as soon as may be after it is framed, before each Houses of Parliament.

1.10.6 Modification of Scheme (Sec. 7)

The Central Government may, by notification in the Official Gazette, add to, amend or vary, either prospectively or retrospectively the Schemes

1.11 Central Board (Sec. 5A)

The Central Government may constitute a Board of Trustees called the Central Board for administering the Employees' Provident Fund, Pension Fund and Employees' Deposit-linked Insurance Fund established under the Schemes.

1.11.1 Composition of Central Board

The Central Board shall consist of the following persons as members:

a.     A Chairman and a Vice-Chairman appointed by the Central Government.

b.    Central Provident Fund Commissioner.

c.     Max.5 officials representing and appointed by Central Government.

d.    Max.15 officials representing State Government appointed by the Central Government.

e.     10 persons representing employers appointed by the Central Government in consultation with association of employers

f.      10 persons representing employees appointed by the Central Government in consultation with organization of the employees

1.11.2 Functions of Central Board

1.     The Central Board shall administer the Fund vested in it in such manner as may be specified in the Schemes.

2.      It shall perform such other functions as it may be required to perform by or under any provision of the Scheme [Sec, 5-A (4)].

3.      The Central Board shall maintain the accounts relating to income and expenditure as specified by Central Government in consultation with CAG.

4.      The Central Board shall take policy decisions.

1.11.3 Audit of accounts of the Central Board

The accounts of the Central Board shall be audited annually by the CAG, and any such expenditure in relation to the audit shall be payable by the Central Board to him. [Sec. 5-A (6)] 

1.11.4 Trustees of Central Board (Sec. 5-C)

Every Board of Trustees constituted under section 5A shall be a body corporate under the name specified in the notification constituting it, having perpetual succession and a common seal.

1.11.5 Executive Committee of Central Board (Sec. 5-AA)

The Central Government may constitute an Executive Committee, to assist the Central Board in the performance of its function.

1.11.6 Composition of Executive Committee

i.      A Chairman appointed by the Central Government.

ii.    2 persons representing the Central Government and 3 persons representing the State Government both appointed by the Central Government.

iii.   3 persons representing the employers and 2 persons representing employees both elected by the Central Board.

iv.   Central Provident Fund Commissioner

All these members of the Executive Committee are selected out of the members of the Central Board.

1.12 State Board (Sec. 5-B)

The Central Government may constitute a Board of Trustees called the State Board in consultation with the State Government [Sec. 5-B (I)]. The State Board shall exercise such powers and perform such duties as the Central Government may assign to it from time to time (Sec. 5-B (2)).On the formation of the State Board the Central Board shall transfer the amount standing to the credit of the Provident Fund of all the employees in a separate Provident Fund for that State which shall be administered by the State Board and on such happening the Central Board shall stand dissolved.

1.12.1 Trustees of State Board (Sec. 5-C)

The State Board shall be a body corporate under the name specified in the notification constituting it, having perpetual succession and a common seal.

Every Board of Trustees constituted under section 5A or section 5B shall be a body corporate.

1.13 Appointment of officers (Sec. 5-D)

The Central Provident Fund Commissioner is the Chief Executive Officer of the Central Board appointed by the Central Government and is responsible for the general control and superintendence of that Board. The appointment of various posts under Central Board shall be made after consultation with the Union Public Service Commission. Accordingly a State Board may also appoint staff with the approval of the State Government concerned.

1.13.1 Appointment of Financial Adviser & Chief Accounts Officer [Sec. 5-D (2)]

The Central Government may also appoint a Financial Adviser and Chief Accounts Officer to assist the Central Provident Fund Commissioner in the discharge of his duties.

1.14 Acts of the Central and State Board (Sec. 5DD)

No act done or proceeding taken by the Central Board or the Executive Committee constituted under section 5AA or the State Board shall be questioned on the ground merely of the existence of any vacancy in, or any defect in the constitution of, the Central Board or the Executive Committee or the State Board, as the case may be.

1.15 Delegation (Sec. 5E)

The Central Board may delegate to the Executive Committee or to the Chairman of the Board or to any of its officers and a State Board may delegate to its Chairman or to any of its officers subject to such conditions as specified in the Act.

For more details, refer to Business & Corporate Laws, by Asok Nadhani, BPB Pubications, www.bpbonline.com, bpbpublications@gmail.com