Exemptions From coverage of EPF ACT.

Guidelines to Exempted Establishment APPENDIX A (Revised Guidelines)

EXEMPTION: PROVISIONS OF ACT/SCHEMES An establishment covered under the EPF & MP Act, 1952 is required to comply with the statutory provisions of the Act and also the provisions of the Schemes framed under the Act namely EPF Scheme, 1952, EPS Scheme, 1995 and EDLI Scheme, 1976. However, the Act provides for grant of exemption from the operation of Act and also exemption from the operation of the Schemes framed under the Act. Thus, the types of exemption provided under the Act may be broadly classified as under: (a)Exemption from the Act (Including the Schemes), under Section 16 (2) of the Act. (b)Exemption from the operation of the Scheme/s viz. EPF Scheme / EPS Scheme / EDLI Scheme. (a) EXEMPTION FROM THE ACT (INCLUDING THE SCHEMES) This type of exemption is allowed under Section 16(2) of the Act by the Central Government. Exemption from the Act is allowed only to a class of establishments. It is granted considering the financial or other circumstances of the class of establishments. This exemption can be given prospectively or retrospectively. It is allowed for a specified period only. (b) EXEMPTION FROM THE OPERATION OF THE EPF SCHEME/EPS SCHEME/EDLI SCHEME. In this type of exemption, it is only an exemption from the operation of a specified scheme and not from the Act. Apart from granting exemption to an establishment from the operation of a particular Scheme, the Act also provides for grant of exemption to an individual employee and also to a class of employees. Thus exemption from the operation of the Scheme is granted. 1. To an establishment as a whole: 2. To an individual employee: 3. To a class of employees. An establishment may seek exemption from the operation of all the three schemes or any of the Scheme framed under the Act. Issue of Relaxation Order Before granting exemption to an establishment, the application of the establishment and also the rules of the fund are required to be scrutinized for considering the grant of exemption. As it may take some time to process the application, the Regional

Provident Fund Commissioner / Central Provident Fund Commissioner, as the case may be, may issue a relaxation order to the establishment. The Regional Provident Fund Commissioner / Central Provident Fund Commissioner may also impose certain other conditions on maintenance of accounts, enrolment of members, investment of monies, payment of inspection charges and submission of returns etc, in the Relaxation Order. For all practical purposes the establishment under Relaxation Order shall be treated on par with the establishment granted exemption. The Relaxation Order is issued under Para 79 of the EPF Scheme and Para 28(7) of the EDLI Scheme. EXEMPTION FROM THE OPERATION OF EPF SCHEME, 1952 Exemption from the operation of EPFs to an establishment as a whole, is granted either under Section 17(1) (a) or under Section 17(1) (b) of the Act. Exemption under Section 17(1) (a) : The grant of exemption to an establishment under Section 17 (1) (a) is : Considered where the rates of contribution are not less - favourable than the statutory rates provided in Section-6 of the Act and the employees are also in enjoyment of other PF benefits which are also on the whole not less favourable than the benefits provided under the Act / Scheme. The authority to grant this exemption is the Appropriate Government as defined in Section 2 (a) of the Act (Central / State Government, as the case may be) and notified in the Gazette. Exemption under Section 17(1) (b) : Exemption under Section 17(1) (b) is granted where the employees in an establishment are in enjoyment of benefits in the nature of P.F., Pension or gratuity which are separately or jointly are on the whole not less favourable than the benefits provided under the Act/Scheme. It is granted by the Appropriate Government, through a notification in the official gazette. Payment of Inspection charges : The establishment to which Relaxation Order issued / exemption granted is required to pay Inspection charges @ 0.18% of total wages on which P. F. is recovered, to the Regional Provident Fund Commissioner concerned by deposit in Local cheque in State Bank of India to the credit of A/c. No.2 of the E.P.F., through the prescribed challan. Exemption of an employee : (E. P. F. Scheme, 1952)

Section 17 (2) read with Para 27 of the E.P. F. Scheme provides for grant of exemption from the operation of all or any of the provisions of the scheme to an individual employee. It is granted by the Regional Provident Fund Commissioner on receipt of application in Form 1 from the employee. The exemption is granted where an employee is entitled to benefits in the nature of PF, gratuity or old age pension and such benefits separately or jointly are on the whole not less favourable than the benefits provided under the Act and Scheme. Wherever the exemption to an individual employee is granted, the employer is required to submit a monthly return to the Regional Provident Fund Commissioner in the proforma set out in the Schedule annexed to the Notification No. 936, dated 30.03.1991 issued by the Central Government. The due date for submission of this return is 25th of the month following that to which it relates . The employer is required to pay Inspection Charges @ 0.18 % on wages of the employees exempted and invest the P. F. Moneys in accordance with the pattern of investment prescribed by the Central Government. The employee may again be permitted to join the statutory fund by making an application. The option is permitted once only on each account. Exemption of a class of Employees : (E. P.F. Scheme, 1952) Section 17 (2) read with Para 27 A of the EPF Scheme provides for grant of exemption from the operation of all or any of the provisions of the Scheme to a class of employees. It is granted by the appropriate Government on receipt of application from the employer. The exemption is granted where the employees are entitled to benefits in the nature of PF, gratuity or old age pension and such benefits separately or jointly are on the whole not less favourable than the benefits provided under the Act and Scheme. Wherever the exemption to a class of employee is granted, the employer is required to submit a monthly return to the Regional Provident Fund Commissioner in the proforma set out in the Schedule annexed to the Notification No. 3469, dated 03.09.1983 issued by the Central Government. The due date for submission of this return is 25th of the month following that to which it relates. The employer is required to pay Inspection charges @ 0.18 % on wages of the employees exempted and invest the PF moneys in accordance with the pattern of investment prescribed by the Central Government. The class of employees may again be permitted to join the statutory fund. The option is permitted once only on each account. EXEMPTION PROVISIONS OF ACT / SCHEME - AT A GLANCE. S. No. 1. Nature of exemption Granted under Act/Scheme Authority to grant exemption Central Govt. Authority to issue Relaxation Remarks Order Exemption to a class of estts.only

Exemption from the Sec. 16 (2) of the Act. Act

for a specified period 2. Exemption from the Sec. 17 (1) (a) or operation of EPF 17 (1) (b) 1952 Sec.17 (2) read -Dowith Para 27-A of the EPF Scheme. Sec.17 (2)read -Dowith Para 27 of the EPF Scheme Exemption from the operation of the EPS Sec. 17 (1C) Scheme Exemption from the operation of EDLI, Sec.17 (2A) 1976 Sec. 17 (2B) read -Dowith Para 28 (4) of the EDLI Scheme Sec.17 (2B) read -Dowith Para 28 (1) of the EDLI Scheme Appropriate Govt Exemption to an estt as a whole To a class of employees To an individual employee To an estt. as a whole. To an estt as a whole. To a class of employees To an individual employee

3.

Appropriate Govt

4.

R. P. F. C

5.

Appropriate Govt

R.P.F.C Para 28 (7) of the EDLI Scheme -Do-

6.

C. P. F. C

7.

C. P. F. C

8.

R. P. F. C

REVISED CONDITIONS FOR GRANT OF EXEMPTION The following are the revised conditions for grant of exemption under section 17 of the Act, 1952: 1. The employer shall establish a Board of Trustees under his Chairmanship for the management of the Provident Fund according to such directions as may be given by the Central Government or the Central Provident Fund Commissioner, as the case may be, from time to time. The Provident Fund shall vest in the Board of Trustees who will be responsible for and accountable to the Employees Provident Fund Organisation, inter alia, for proper accounts of the receipts into and payment from the Provident Fund and the balance in their custody. For this purpose, the employer shall mean (i) in relation to an establishment, which is a factory, the owner or occupier of the factory; and

(ii) in relation to any other establishment, the person who, or the authority, that has the ultimate control over the affairs of the establishment. 2. The Board of Trustees shall meet at least once in every three months and shall function in accordance with the guidelines that may be issued from time to time by the Central Government / Central Provident Fund Commissioner (CPFC) or an officer authorized by him. 3. All employees as defined in section 2(f) of the Act, who have been eligible to become members of the Provident Fund, had the establishment not been granted exemption, shall be enrolled as members. 4. Where an employee who is already a member of Employees Provident Fund or a provident fund of any other exempted establishment is employed in his establishment, the employer shall immediately enroll him as a member of the fund. The employer should also arrange to have the accumulations in the provident fund account of such employee with his previous employer transferred and credited into his account. 5. The employer shall transfer to the Board of Trustees the contributions payable to the Provident Fund by himself and employees at the rate prescribed under the Act from time to time by the 15th of each month following the month for which the contributions are payable. The employer shall be liable to pay simple interest in terms of the provisions of section 7-Q of the Act for any delay in payment of any dues towards the Board of Trustees. 6. The employer shall bear all the expenses of the administration of the Provident Fund and also make good any other loss that may be caused to the Provident Fund due to theft, burglary, defalcation, misappropriation or any other reason. 7. Any deficiency in the interest declared by the Board of Trustees is to be made good by the employer to bring it up to the statutory limit. 8. The employer shall display on the notice board of the establishment, a copy of the rules of the funds as approved by the appropriate authority and as when amended thereto along with a translation in the language of the majority of the employees. 9. The rate of contributions payable, the conditions and quantum of advances and other matters laid down under the provident fund rules of the establishment and the interest credited to the account of each member, calculated on the monthly running balance of the member and declared by the Board of Trustees shall not be lower than those declared by the Central Government under the various provisions prescribed in the Act and the Scheme framed there under. 10. Any amendment to the Scheme, which is more beneficial to the employees than the existing rules of the establishment, shall be made applicable to them automatically pending formal amendment of the Rules of the Trust. 11. No amendment in the rules shall be made by the employer without the prior approval of the Regional Provident Fund Commissioner (referred to as RPFC hereafter). The RPFC shall before giving his approval give a reasonable opportunity to the

employees to explain their point of view. 12. All claims for withdrawals, advances and transfers should be settled expeditiously, within the maximum time frame prescribed by the Employees Provident Fund Organisation. 13. The Board of Trustees shall maintain detailed accounts to show the contributions credited, withdrawal and interest in respect of each employee. The maintenance of such records should preferably be done electronically. The establishments should periodically transmit the details of members accounts electronically as and when directed by the CPFC / RPFC. 14. The Board of Trustees shall issue an annual statement of accounts or pass books to every employee within six months of the close of financial / accounting year free of cost once in the year. Additional printouts can be made available as and when the members want, subject to nominal charges. In case of pass book, the same shall remain in custody of employee to be updated periodically by the Trustees when presented to them. 15. The employer shall make necessary provisions to enable all the members to be able to see their account balance from the computer terminals as and when required by them. 16. The Board of Trustees and the employer shall file such returns monthly / annually as may be prescribed by the Employees Provident Fund Organisation within the specified time-limit failing which it will be deemed as a default and the Board of Trustees and employer will jointly and separately be liable for suitable penal action by the Employees Provident Fund Organisation. 17. The Board of Trustees shall invest the monies of the provident fund as per the directions of the Government from time to time. Failure to make investments as per directions of the Government shall make the Board of Trustees separately and liable to surcharge as may be imposed by the Central Provident Fund Commissioner or his representative. 18. (a) The securities shall be obtained in the name of Trust. The securities so obtained should be in dematerialized (DEMAT) form and in case the required facility is not available in the areas where the trust operates, the Board of Trustees shall inform the Regional Provident Fund Commissioner concerned about the same. (b) The Board of Trustees shall maintain a script wise register and ensure timely realization of interest. (c) The DEMAT Account should be opened through depository participants approved by Reserve Bank of India and Central Government in accordance with the instructions issued by the Central Government in this regard. (d) The cost of maintaining DEMAT account should be treated as incidental cost of investment by the Trust. Also all types of cost of investments like brokerage of purchase of securities etc. shall be treated as incidental cost of investment by the Trust. 19. All such investments made, like purchase of securities and bonds, should be lodged in the safe custody of depository participants, approved by Reserve Bank of India and Central Government, who shall be the custodian of the same. On closure of establishments or liquidation or cancellation of exemption from EPF Scheme, 1952, such custodian shall transfer the investment obtained in the name of the Trust and standing in its credit to the RPFC concerned directly on receipt of request from the RPFC

concerned to that effect. 20. The exempted establishments shall intimate to the RPFC concerned, the details of depository participants (approved by Reserve Bank of India and Central Government), with whom and in whose safe custody, the investments made in the name of trust, viz. Investments made in securities, bonds, etc. have been lodged. However, the Board of Trustees may raise such sum or sums of money as may be required for meeting obligatory expenses such as settlement of claims, grant of advances as per rules and transfer of members P.F accumulations in the event of his/her leaving service of the employer and any other receipts by sale of the securities or other investments standing in the name of the Fund subject to the prior approval of the Regional Provident Fund Commissioner. 21. Any commission, incentive, bonus or other pecuniary rewards given by any financial or other institutions for the investment made by the Trust should be credited to its account. 22. The employer and the members of the Board of Trustees, at the time of grant of exemptions, shall furnish a written undertaking to the RPFC in such format as may be prescribed from time to time, inter alia, agreeing to abide by the conditions which are specified and this shall be legally binding on the employer and the Board of Trustees, including their successors and assignees or such conditions as may be specified later for continuation of exemption. 23. The employer and the Board of Trustees shall also give an undertaking to transfer the funds promptly within the time limit prescribed by the concerned RPFC in the event of cancellation of exemption. This shall be legally binding on them and will make them liable for prosecution in the event of any delay in the transfer of funds. 24. (a) The account of the Provident Fund maintained by the Board of Trustees shall be subject to audit by a qualified independent chartered accountant annually. Where considered necessary, the CPFC or the RPFC in-charge of the Region shall have the right to have the accounts reaudited by any other qualified auditor and the expenses so incurred shall be borne by the employer. (b) A copy of the Auditors report along with the audited balance sheet should be submitted to the RPFC concerned by the Auditors directly within six months after the closing of the financial year from 1st April to 31st March. The format of the balance sheet and the information to be furnished in the report shall be as prescribed by the Employees Provident Fund Organisation and made available with the RPFC Office in electronic format as well as a signed hard copy. (c) The same auditors should not be appointed for two consecutive years and not more than two years in a block of six years. 25. A company reporting loss for three consecutive financial years or erosion in their capital base shall have their exemption withdrawn from the first day of the next / succeeding financial year. 26. The employer in relation to the exempted establishment shall provide for such facilities for inspection and pay such inspection charges as the Central Government may from time to time direct under clause (a) of sub-section (3) of section 17 of

the Act within 15 days from the close of every month. 27.In the event of any violation of the conditions for grant of exemption, by the employer or the Board of Trustees, the exemption granted may be cancelled after issuing a show cause notice in this regard to the concerned persons. 28. In the event of any loss to the trust as a result of any fraud, defalcation, wrong investment decisions etc., the employer shall be liable to make good the loss. 29. In case of any change of legal status of the establishment which has been granted exemption, as a result of merger, demerger, acquisition, sale, amalgamation, formation of a subsidiary, whether wholly owned or not, etc., the exemption granted shall stand revoked and the establishment should promptly report the matter to the RPFC concerned for grant of fresh exemption. 30. In case, there are more than one unit/establishment, participating in the common Provident Fund Trust which has been granted exemption, all the trustees shall be jointly and separately liable / responsible for any default committed by any of the trustees / employer of any of the participating units and the RPFC shall take suitable legal action against all the trustees of the common Provident Fund Trust. 31. The Central Government may lay down any further conditions for continuation of exemption of the establishments. RETURNS Establishments exempted from the provisions of EPF Scheme, 1952 are required to submit monthly returns in Appendix A by 25th of the subsequent month to which it relates. In this comprehensive return, everything from contribution payable by the establishment to its payment, its receipt and its investment have to be specified along with other information regarding audit of fund, issuance of accounts slips etc. At the end of each financial year, the establishment is required to submit a copy of audited balance sheet of the Trust in Annexure-B within 6 months of the close of the financial year. No such return has till date been prescribed for establishment exempted from EPS,1995. INVESTMENT PATTERN In exercise of the powers conferred by sub-paragraph (1) of paragraph 52 of the Employees Provident Funds Scheme, 1952 and in super session of the Notification of the Government of India in the Ministry of Labour No.S.O. 1398, dated the 11th July 1998 (dated 19-6-1998 published in the Gazette of India) the Central Government hereby directs that all incremental accretions belonging to the Fund shall be invested in accordance with the following pattern namely: -

PERCENTAGE AMOUNT TO BE INVESTED Central Government Securities as defined in section 2 of the Public Debt 25% Act, 1944 (18 of 1944); and/or units of such Mutual Funds which have been set up as dedicated Funds for investment in Government securities and which have been approved by the Securities and Exchange Board of India (a) Government Securities as defined in section 2 of the Public 15% Debt Act, 1944 (18 of 1944); created and issued by any State Government; and/or units of such Mutual Funds which have been set up as dedicated Funds for investment in Government securities and which have been approved by the Securities and Exchange Board of India; 15% and/or INVESTMENT PATTERN (b) Any other negotiable securities the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central Government or any State Government except those covered under (iii)(a) below: (a) Bonds/Securities of Public Financial Institutions as specified under section 4(1) of the Companies Act, Public sector companies as defined in Section 2 (36-A) of the Income Tax Act, 1961 including public sector banks; and/or (b) Short duration (less than a year) Term Deposit Receipt (TDR) issued by public sector banks To be invested in any of the above three categories as decided by their Trustees The Trust, subject to their assessment of risk-return prospects, may invest up to 1/3rd of (iv) above, in private sector bonds/securities, which have an investment grade rating from at least two credit rating agencies.

30%

30%

2. Any money received on the maturity of earlier investments reduced by obligatory outgoing shall be invested in accordance with the investment pattern prescribed in this Notification. 3. In case of any instruments mentioned above being rated and their rating falling below investment grade and the same rating has been confirmed by two credit rating agencies then the option of exit can be exercised.

4. The investment pattern as envisaged in the above paragraphs may be achieved by the end of a financial year, and shall come into force with immediate effect. PERMISSION FOR RESTRUCTURING AND SALE OF SECURITIES As of now, it is presumed that securities/ Bonds purchased by the exempted funds shall be kept till maturity. As a regulator EPFO is primarily concerned with safety of the fund and therefore exempted funds have not been allowed to transact freely in securities. Hence, permission for conversion of securities from low yielding to high yielding, Restructuring is not allowed as on date. Even for premature encashment of securities, prior permission of Regional Provident Fund Commissioner is essential. CONSTITUTION OF THE BOARD OF TRUSTEES The Employer shall establish a Board of Trustees under the chairmanship of the employer for the management of the Provident Fund according to such directions as may be given by the Central Provident Fund Commissioner or by the Central Government, as the case may be, from time to time. The Provident Fund shall vest in the Board of Trustees who will be responsible for and accountable to the Employees Provident Fund Organisation inter-alia for proper accounts of the receipts into and payments from the provident fund and the balance in their custody. The number of Trustees on the Board shall be so fixed as to afford, as far as possible, representation to workers in branches / departments of the establishment, provided that the number of trustees on the Board shall be neither less than four nor more than twelve. The term of office of a Trustee shall be five years from the date of election or nomination. An outgoing Trustee shall be eligible for reelection or renomination. FUNCTIONS OF THE BOARD OF TRUSTEES 1. 2. The Trustees when elected should ensure that there is a proper trust deed registered. The BOT shall meet at least once in every three months.

3. No business shall be transacted at the meeting of the BOT unless at least four trustees of the board are present of whom at least one is from employers side and one from the employees side. 4. Monthly return submitted to the Regional Provident Fund Commissioner should be placed during the meeting for scrutiny of trustees.

5. The trustees should ensure that the rules of exempted provident fund must require approval of all loans by at least two trustees. 6. Settlement of accounts ( including transfer of accumulations to another P.F.) should require authorization of at least two trustees. 7. The BOT, wherever the amount of the P.F. has not been transferred by the employers to the BOT shall pass a resolution to the effect and forward it to the employer and the Regional Provident Fund Commissioner. 8. The trustees should examine if the amount shown as transferred in the return has in effect been transferred and credited to the bank a/c. of the fund. 9. The trustees should also ensure whether amount shown as invested in the last monthly return has in effect been invested.

10. Once in every year the securities should be scrutinized by the trustees. 11. The report of the Provident Fund Inspector and the correspondence relating to the trust fund between the employer and the Regional Provident Fund Commissioner should be placed before the meeting of the trustees. 12. Within six months of the close of financial year the employer should place the audited balance sheet of the trust before the trustees. 13. The trustees shall before the close of the financial year declare the rate of interest for the succeeding year. 14. Along with the Balance Sheet the Chairman should also furnish an annual report to the trustees for their consideration and adoption. 15. The Balance Sheet and the annual report, after their approval by the trustees, should be forwarded to the concerned Regional Provident Fund Commissioner, recognized Union/ Association of employees. 16. All complaints received from the subscribers should be examined by the BOT. 17. The BOT shall fix a grievance day once in a month. 18. The BOT shall have a separate notice board of their own and display important decisions, amendments etc. on it. Wherever non-transfer/non-investment occurs the same should be displayed for the knowledge of the subscribers.

19. The BOT shall periodically review the issuance of annual statement of accounts, settlement of claims, sanction of advances etc. DOS AND DONTS OF EXEMPTED ESTABLISHMENTS Dos Keep the rules updated in accordance with changes made in the Act/ Schemes by the Govt. Keep the trust well constituted as per the requirements of the Act/ Schemes. Ensure that pattern of investment is followed strictly in accordance with the notification of Govt. issued from time to time.

All periodical returns/annexures/appendix are sent to the office of Regional P.F. Commissioner as per schedule prescribed by EPFO. All the securities are purchased in the name of Board of Trustees and kept in the safe custody of Nationalised Banks in SGL A/cs and in Demat form. Ensure that all contributions/remittances are transferred to the Trust within the stipulated time.

Ensure that Service to Subscriber remains a priority area and settlement of claims/issue of Annual Statement of Account is completed as per prescribed time frame. Ensure submission of all required documents along with the pension claim for prompt finalisation. Declare rate of interest within time limit at par or higher than the rate notified by Govt. in respect of EPFO.

DONTS v v v v Dont increase your liability in form of damages/penal interest caused by delayed transfer of dues to the trust. Dont keep the securities in the custody of the employer. Dont delay the elections of the Board of Trustees and nomination of Representative therein. Dont deviate from the pattern of investment as notified by the Govt.

v v v v v v

Dont delay the audit of accounts of the fund. Dont delay the transfer of maturity proceeds of investment to the BOT. Dont forget to send the copy of resolution passed by BOT from time to time to the office of RPFC. Dont delay the submission of requisite documents for exemption in respect of relaxed establishment under the Scheme. Dont neglect the grievance of the employees whenever it comes up before the Govt./BOT. Dont delay in responding to the references made by the office of RPFC.

EXEMPTION FROM EMPLOYEES PENSION SCHEME 1995 : The appropriate Government may, be notification in the Official Gazette, and subject to the condition on the pattern of investment of pension fund and such other conditions as may be specified therein, exempt any establishment or class of establishments from the operation of the Pension Scheme if the employees of such establishment or class of establishments are either members of any other pension scheme or propose to be members of such pension scheme, where the pensionary benefits are at par or more favourable than the Pension Scheme under this Act. EXEMPTION FROM THE EMPLOYEES DEPOSIT LINKED INSURANCE SCHEME, 1976. Section 17 (2A) of the Act provides for grant of exemption from the operation of Employees Deposit Linked Insurance Scheme, 1976. It is granted to an establishment, where the employees are, without making any separate contribution or payment of premium, in enjoyment of benefits in the nature of Life Insurance whether linked to their deposits in Provident Fund or not and such benefits are more favourable than the benefits admissible under the Insurance Scheme. It is granted by the Central Provident Fund Commissioner by notification in the official gazette and is subject to conditions that may be specified in the notification. It is granted either prospectively or retrospectively. Pending grant of exemption to an establishment relaxation order may be issued under Para 28 (7) of the Employees Deposit Linked Insurance Scheme, 1976. An establishment exempted from the operation of Employees Deposit Linked Insurance Scheme, 1976 is required to submit a monthly return to the Regional Provident Fund Commissioner by the 25th of the month in Form 7(IF). Para 28 (4) of the Scheme provides for grant of exemption by the Central Provident Fund Commissioner to any Class of employees.

Under Section 17 (2B) read with Para 28 (1) of the Employees Deposit Linked Insurance Scheme, 1976, the Regional Provident Fund Commissioner may grant exemption from the operation of all or any of the provisions of the Employees Deposit Linked Insurance Scheme to an employee. The establishment shall pay inspection charges at the rate of 0.005 % of the basic wages and Dearness Allowance subject to a minimum of Rs.1/- per month.