Tuesday, August 19, 2008

FAQ on Provident Fund and gratuity

What is Provident Fund?

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:
Who are covered under it?

Every factory engaged in any industry specified in Schedule 1 in which 20 or more persons are employed, every other establishment employing 20 or more persons or class of such establishments which the Central Government may notify, any other establishment so notified by the Central Government even if employing less than 20 persons.

Who are the contributors towards the fund?

As per amendment-dated 22.9.1997, both the employee and the employer contribute to the fund at the rate of 12 per cent of the basic wages, dearness allowance and retaining allowance, if any, payable to employees per month. The rate of contribution is 10 per cent in the case of some establishments which are mentioned in the Act.
What is the interest rate?

The rate of interest is fixed by the Central Government in consultation with the Central Board of trustees, Employees' Provident Fund every year during March/April, so it can vary from year to year. The rate is yet to be finalised for this year with the EPF Board toying with an 8 per cent and the Unions demanding a 9.5 per cent.
Can you withdraw from the Provident Fund?

The entire amount of the PF along with the accumulated interest can be withdrawn by an employee on retirement after attaining the age of 55 years. However, in cases of termination, retirement on account of permanent disablement, on migration from India for a permanent settlement abroad and in cases of retrenchment, the amount can be withdrawn before the completion of 55 years. A person can also withdraw 90 per cent of the amount a year before his or her retirement.

What are the special cases where you can withdraw from PF?

In case a person is going for a job change, his Provident Fund account can be transferred for further continuation in the next office. For this, the concerned person has to fill the Transfer Application in form 13 and submit it to the concerned Provident Fund office. If a person is switching to an organisation which does not come under this act, he can receive all the accumulated money which is in his PF account till now. In cases of untimely death of the person, his nominees receive the same.

What is Pension Fund?

The Employees' Provident Fund & Miscellaneous Provisions Act, 1952 was amended in1971 and was renamed as the "The Employees' Provident Fund & Family Pension Act , 1952". It was felt that in case of premature death of the worker or a permanent disablement the Provident fund was too less an amount to support him and his family. This led to an introduction of another social security benefit in the name of pension.

After the last amendment in 1995, Employees' Pension Scheme-95 came into effect from 16.11.95. The assets and liabilities of the erstwhile Pension Fund were transferred and merged with the new Pension Fund. The benefits and entitlements to the members under the old scheme remain protected and continued under the new Employees' Pension Scheme-95. The existing members (as on 16.11.95) of the Provident Fund who did not opt for joining the erstwhile Employees' Family Pension Scheme-1971 and the beneficiaries under the erstwhile Employees' Family Pension Scheme-1971 in case of death/exit occurring between 1.4.93 and 15.11.95 have option to join the new scheme.

ho are covered under the Pension Scheme?

All the members of the ceased Family Pension Scheme and anyone who joins a covered establishment (it has 20 or more than 20 people working) on or after 16-11-95 has to compulsorily join this scheme. But his salary range should be higher than Rs 6500/ per month at the date of appointment.

How do you contribute towards pension fund?

An employer contributes to the pension at the rate of 8.33 per cent of the employees' salary. The Government's contribution is 1.16 per cent. It is calculated on the basis of the wages at the end of the year. The employee does not make any contribution. The calculation of pension is done on the basis of last salary drawn and the number of years of services rendered by the employee. Actual amount accumulated in the Pension fund is not taken into consideration.

When are you entitled to get pension?

A person is entitled to receive pension after the completion of 10 years of service and on attaining the age of 58 years. On ceasing employment earlier than 58 years, pension may be availed of by a member at his option, before attaining the age of 58 years but not below 50 years. Such early pension will be subject to discounting factor. These eligibilities are not counted in cases of permanent disability or death of person.
In case of death, the spouse is entitled to receive (ceases in case of remarriage) or children (should be below 25 years of age). In case the person has died and has not got any eligible family members, the parents; are entitled to receive it. If absence of any family member the nominee of the deceased person can get it.

What is Gratuity?

Gratuity is a retirement benefit for long services as a provision for old age. The Act provides for the payment of gratuity to workers employed in every factory, shop & establishments or educational institution employing 10 or more persons on any day of the proceeding 12 months. A shop or establishment to which the Act has become applicable shall continue to be governed by the Act even if the number of persons employed falls bellow 10 at any subsequent stage.
Who all are covered under it?

Previously there was a wage ceiling above which employees were liable to the benefits. After the 34th amendment to this act in 1994 no such ceiling exists. All employees irrespective of their salary amount are now covered under this Act.

Who contributes to this fund and what is the maximum amount payable?

The employer has to contribute to this fund. The amount of gratuity payable is computed at rate of 17 days wages based on the rate of wages last drawn, for every completed year of service. The maximum amount of Gratuity payable was Rs one lakh earlier but after the 11th amendment to the Act in 1998 the amount payable under the scheme has been raised to Rs 3.5 lakh. Companies have a choice of opting for a higher benefit of gratuity that is - a higher total amount to be paid.,

When can you expect gratuity?

Completion of at least five years of continuous services is necessary to receive this amount. However, it does not apply in cases where a person has stopped working due to death or disablement. In the natural course an employee can receive it on his superannuation, retirement or resignation.

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