Provident fund is a fund that provides benefits to the employees of a company (who are members of the fund), upon termination of their employment. Both the employees and the employer are required to make contributions to the fund in accordance with the predetermined rates. To become eligible for membership of the fund,a worker must have completed one year’s continuous service or have worked for 240 days during a period of 12 months.The employees have to contribute at a certain rate of the basic wage,dearness allowance and retaining allowances. Similarly,employers also contribute at the same rate.
In India,the governing Act relating to provident fund is the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF & MP Act). It was enacted with the main objective of making some provision for the future of the industrial workers after their retirement and for their dependents in case of death. This Act applies to the whole India except Jammu & Kashmir. It is applicable to every establishment which is engaged in any one or more of the industries specified in Schedule I of the Act or any activity notified by Central Government in the Official Gazette and employing 20 or more persons.The Act provides insurance to workers and their dependents against risks of old age,retirement,discharge,retrenchment or death of the workers.
Presently, three schemes are in operation under the Act and are administered by the Central Board of Trustees.The three schemes taken together provide to the employees an old age and survivorship benefits, a long term protection and security to the employee and after his death to his family members, and timely advances including advances during sickness and for the purchase/construction of a dwelling house during the period of membership. These three schemes are as follows:-
- Employees’ Provident Fund Scheme, 1952 :- This seeks to provide financial security for employees in an establishment by providing a system of compulsory savings. The scheme covers employees getting wages not exceeding Rs. 6,500 per month. The scheme takes care of following needs of the members of the fund:- (i) Retirement;(ii) Medical Care;(iii) Housing; (iv) Family obligation;(v) Education of Children; and (vi) Financing of Insurance Polices. However,a death relief fund has been set up under the Employees’ Provident Fund Scheme to provide relief to the nominees or heirs of the deceased member.
- Employees’ Deposit Linked Insurance Scheme, 1976 :- The Central Government with the motive of providing additional Social Security in the form of Life Insurance to the family of the deceased member of the Provident Fund, introduced the Employees Deposit Linked Insurance Scheme. Under it,on the death of an employee,while in service,who is the member of the Employees’ Provident fund,the persons entitled to receive the provident fund accumulations would be paid an additional amount equal to the average balance in the provident fund account of the deceased during the preceding 12 months.
- Employees’ Pension Scheme, 1995 (replacing the Employees’ Family Pension Scheme, 1971) :- A pension (also known as superannuation) is a retirement plan intended to provide a person with a secure income for life .It can also be defined payments or benefits attributable to employees at the time of retirement,during old age,at the time of permanent disablement or in the form of family pensions in case of death of the worker,etc. The Employees Pension Scheme was introduced for the industrial workers wherein pension at the rate of 50 percent pay is payable to the employees on retirement on completion of 33 years contributory service. A minimum 10 years service is required for entitlement to pension. In case of death of an employee,the scheme provides for grant of pension to family members on the basis of salary and service of the employee.The scheme was financed by diverting a portion of the employers’ and employees’ contribution to the Employees Provident Funds with an additional contribution by the Central Government.
The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF & MP Act) is administered by the Central and State Governments along with the Central Board of Trustees and Committees and Employees Provident Fund Organization(EPFO). The Employees’ Provident Fund Organisation(EPFO), India, is one of the largest provident fund institutions in the world in terms of members and volume of financial transactions that it has been carrying on. It is an autonomous tripartite body under the control of Ministry of Labour, Government of India with its head office in New Delhi. The EPFO aims to extend the reach and quality of publicly managed old-age income security programs through its consistent efforts and ever-improving standards of compliance and benefit delivery system to its members. This way it seeks to contribute to the economic and social well-being of the country.
Ref: http://business.gov.in/manage_business/provident_fund.php
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