PROVIDENT FUND,

GRATUITY AND
SUPERANNUATION
FUND
CA. A.JOHN MORIS
info@ajohnmoris.com

CA. A. JOHN MORIS

LABOUR LAW - INTRODUCTION

Labour law also known as employment
law

Defines the rights and obligations of
workers, union members and employers
in the workplace

Generally, labour law covers:
 Industrial relations
 Workplace health and safety;
 Employment standards

CA. A. JOHN MORIS

 INTRODUCTION (Contd
(Contd))

Two broad categories of labour law

 Collective labour law

 Individual labour law

CA. A. JOHN MORIS

 History of Labour laws
Labour law arose mainly due to the,

Demands of workers for better conditions

and the right to organize

Demands of employers to restrict the

powers of workers and to keep labour
costs low

CA. A. JOHN MORIS

Purpose of labour legislation

Establishes a Legal system facilitating
productive individual and collective
employment relationships

Provides a framework within which
employers, workers and their
representatives can interact with regard
to work-related issues

Provides fundamental principles and rights
at work
CA. A. JOHN MORIS
Evolution of Labour law in India

Also known as Industrial law in India

Enacted by the British intended to
protect the interests of the British
employers

The Factories Act was first introduced in
1883

Modification of legislation by Independent
India

CA. A. JOHN MORIS

Employment Agreement

An agreement that is entered into between
two parties, i.e. the employer and employee

Document that pacifies the responsibilities
and duties expected of an employee

Describes the profile of the job and the title

Document ensures that the employee knows
his place in the organisation and what is
expected of him

CA. A. JOHN MORIS

Employment Agreement - Contents

Name of the parties involved

Starting date of employment

Title and description of the job

Location of work

Hours of work

Probationary period

Salary

Restrictive terms

Holidays

Other information like deductions,
permissible expenses, notice period etc.
CA. A. JOHN MORIS
The legislations can be categorized as
follows:

Labour laws enacted by the Central
Government

Labour laws enacted by Central Government
and enforced both by Central and State
Governments

Labour laws enacted by Central Government
and enforced by the State Governments

Labour laws enacted and enforced by the
various State Governments which apply to
respective States
CA. A. JOHN MORIS
Few Labour laws enacted by the
Central Government

The Employees’ State Insurance Act, 1948

The Employees’ Provident Fund and
Miscellaneous Provisions Act,1952

The Mines Act, 1952

The Beedi Workers Welfare Cess Act, 1976

The Cine Workers Welfare (Cess) Act, 1981

The Beedi Workers Welfare Fund Act, 1976

The Cine Workers Welfare Fund Act, 1981

CA. A. JOHN MORIS

Few Labour laws enacted by Central
Government and enforced both by Central and
State Governments

The Child Labour (Prohibition and Regulation) Act, 1986

The Building and Other Constructions Workers’ (Regulation
of Employment and Conditions of Service) Act, 1996.

The Contract Labour (Regulation and Abolition) Act, 1970.

The Industrial Disputes Act, 1947.

The Maternity Benefit Act, 1961

The Payment of Bonus Act, 1965

The Payment of Gratuity Act, 1972

The Payment of Wages Act, 1936

The Apprentices Act, 1961

Private Security Agencies (Regulation) Act, 2005

CA. A. JOHN MORIS

Few Labour laws enacted by Central
Government and enforced by the State
Governments

The Employers’ Liability Act, 1938

The Factories Act, 1948

The Motor Transport Workers Act, 1961

The Sales Promotion Employees (Conditions of
Service) Act, 1976

The Trade Unions Act, 1926

The Workmen’s Compensation Act, 1923

The Employment Exchange (Compulsory
Notification of Vacancies) Act, 1959

The Children (Pledging of Labour) Act 1938
CA. A. JOHN MORIS
Few Labour laws enacted and enforced
by the TamilNadu State Government

The Tamilnadu Shops and Establishment Act, 1947 and
Rules.

The Tamilnadu Catering Establishments Act, 1958 &
Rules.

The Tamilnadu Industrial Establishments (National and
Festival Holidays) Act, 1958 and Rules.

The Tamilnadu Handloom Workers (Conditions of
Employment and Miscellaneous Provisions) Act, 1981.

The Tamilnadu Manual Workers (Regulation of
Employment and Conditions of Work) Act, 1982 and
Rules.

CA. A. JOHN MORIS

EMPLOYEES PROVIDENT
FUND AND MISC.
PROVISIONS ACT, 1952

CA. A. JOHN MORIS

Introduction

An Act to provide for the institution of
provident funds, pension funds and
deposit linked insurance fund for the
employees in the factories and other
establishments.

The Act extends to the whole of India

except the State of Jammu and Kashmir.

CA. A. JOHN MORIS

Objectives

Toprovide a kind of social security to the

industrial workers. The Act mainly
provides retirement or old age benefits

The Act provides for payment of terminal

benefits in various contingencies

CA. A. JOHN MORIS

Applicability

All factories and establishments in which 20 or
more are employed

Any establishment to which the Act applies shall
continue to be governed by the Act even if the
number of persons employed therein at any time
falls below.

Any other establishment employing 20 or more
persons which Central Government may, by
notification, specify in this behalf.

Any establishment employing even less than 20
persons can be covered voluntarily u/s 1(4) of the
Act.

CA. A. JOHN MORIS

Schemes under the Act
Three beneficial schemes :

Employees Provident Fund Scheme 1952

Employees Pension Scheme 1995

Employees Deposit Linked Insurance

1976
CA. A. JOHN MORIS
Membership

Every employee employed in or in connection with the

work of a factory or other establishment covered by
the schemes other than an excluded employee is
entitled and required to become a member of the fund
from the date of joining the factory or establishment.

An employee at the time of joining the employment and

getting wages up to Rs.6500/- is required to become a
member.

CA. A. JOHN MORIS

REGISTRATION:
◦ Proforma for coverage
◦ Declaration form (Form 2 Revised)
◦ Form 12A for the month or up to the date of
registration with DD
◦ Form 5A Declaration of ownership
◦ Form 9 Employer Registration Form
◦ Computer Sheet for Social Security Number
◦ Other Documents

CA. A. JOHN MORIS

Excluded Employee

An employee who, having been a member of the fund,
has withdrawn the full amount of his contribution in
the fund
 on retirement from service after attaining the age of 55
years or
 before migration from India for permanent settlement
abroad or for taking employment abroad

An employee whose pay at the time he is otherwise
entitled to become a member of the Fund, exceeds
Rs. 6,500/- per month.

A person who, is an apprentice, or who is declared to
be an apprentice by the authority specified in this
behalf by the appropriate Government.

CA. A. JOHN MORIS

RETURNS:
◦ MONTHLY RETURNS
 FORM 12A - Contribution details for all schemes
 Form 5 - new member joining
 Form 10 - member leaving

◦ ANNUAL RETURNS
 Form 3A - Individual employees contribution card
 Form 6A - Annual Return with reconciliation
Statement
 Annual Statement for each employee will be issued
from EPFO

CA. A. JOHN MORIS

 International Worker

An International worker may be an Indian
citizen or a Foreign national,
◦ Any Indian employee working or having worked
abroad in a country with which India has
entered into a Social Security Agreement (SSA);
OR
◦ Any foreigner who works in Indian
establishment where the Employees‟ Provident
Funds & Miscellaneous Provisions Act is
applicable
CA. A. JOHN MORIS
International Worker – Contd…
Contd…

Contribution :
◦ PF for International Workers to be calculated
on Total Wages instead of Basic and DA

◦ No cap on the monthly pay up to which the

Provident Fund contribution has to be made by
both the employer as well as an employee

A statement in form IW-1 is to be sent

while an international worker takes up
employment. Form IW-1

CA. A. JOHN MORIS

Other important Provisions...

Employee can contribute more behind Rs.6500
similarly employer also at his discretion can do so
but not mandatory

Casual/Temporary workers/ Probationary, are taken
into account

Apprentices/ Trainees are excluded from the
definition of employees

Salary includes Basic + DA , but does not include
HRA, CCA, Incentive, Bonus, Washing allowance
etc

The contributions could be remitted in a
consolidated challan (in quadruplicate) by the
employer

CA. A. JOHN MORIS

 Rate of Contribution and Other
Charges payable every month
Contribution Inspection
Use Single Challan to Charges (For
remit dues Administrative exempted
Employees Charges (Payable by Establishments
Share Employers Share Employer only) only)
3.67%
EPF (A/c No. 1) 12%*
Rate of Contribution

12%-8.33%

1.1%
EPF (A/c No. 2) (Subject to a 0.18%
minimum of Rs. 5/-)

EPF (A/c No. 10) 8.33%

EDLI (A/c No. 21) 0.50%

0.005%
(Subject to a
EDLI (A/c No. 22) 0.01%
minimum of
Re.1)

*10% rate of Contribution is applicable only to specified industries / class of establishments.

CA. A. JOHN MORIS
Recognised Provident Fund

A provident fund which has been and continues
to be recognised by the Chief Commissioner or
Commissioner

In accordance with the rules contained in Part

A of the Fourth Schedule, and includes a
provident fund established under a scheme
framed under the Employees’ Provident Fund
Act, 1952

CA. A. JOHN MORIS

 Provisions under Income Tax Act

Employer's contribution to a Recognised Provident Fund
or Approved Superannuation [Section 36(1)(iv) read with
Section 43B]

Employees' contribution to Provident Fund [Section
36(1)(va)]

Payment to Provident Fund NOT eligible for deduction,
unless effective arrangements to secure or deduct tax at
source are made [Section 40(a)(iv)]

Section 10(11) and 10(12) of the Act deal with exemption
on payments from provident funds

Section 80C of the act deals with allowance of deductions
on contributions to provident funds.

Contribution made by employer will be disallowed if
payment of PF was made after due date.
CA. A. JOHN MORIS
 Summarized table showing tax
treatment of provident funds
Statutory Unrecognised Public
Recognised Provident
Provident Provident Provident
Fund
Fund Fund Fund
Exempt up to 12 per
Employer’s cent of salary. Excess of Employer
Exempt from Exempt from
contribution to emplyer’s contribution does not
tax tax
provident fund over 12 per cent of contribute
salary is taxable
Deduction u/s
80C
Available Available NA Available
employee’s
contribution
Exempt from tax if rate
of interest does not
Interest exceed the notified rate
Exempt from Exempt from Exempt from
credited to of interest (i.e. 9.5%).
tax tax Tax
provident fund Excess of interest over
the notified rate is,
however, taxable
Exempt from tax in Payment
Lump sum
some cases when not received from
payment at the
exempt total income of Employee’s
time of Exempt from Exempt from
employee will be Own
retirement or tax tax
computed as if provident contribution is
termination of
fund is an unrecognized exempt from
service CA. A. JOHN MORIS
fund from the beginning tax.
PENALTIES:
 If any person knowingly makes any false
statement makes any false representation,
• Imprisonment for a term up to one year OR
• With a fine Rs. 5,000 OR
• Both

 In case of default to payment to the

employees,
• Imprisonment for a term up to one year and a fine
of Rs.10,000/-

CA. A. JOHN MORIS

Auditor’s Duty

Disclosure
as per Accounting Standard 15
on Employee Benefits Disclosure

Clause - 4(ix)(a)(b)(c) of CARO, 2003

Clause16(b) in Form 3CD – Statement of

Fact under Tax Audit

CA. A. JOHN MORIS

 Employees State Insurance
Act, 1948
Applicability :
• All Factories
• Shops Employing 10 or more persons
• Such establishments specified by the Govt.

Not applicable to :
• Seasonal Factories
• Factories exempted as seasonal
• Mines
• Railway running sheds
• Govt factories or establishments, Indian Naval, Military, or Air Force.
• Other Govt notified exempted establishments.

CA. A. JOHN MORIS

 Employees State Insurance Act,
1948
Cap on Wage :
• Within the ambit of coverage, and
• Earning wages not exceeding Rs. 15,000/- per month are covered
under the ESI Scheme (wef 1st May 2010).

Responsibility :
• Principal Employer’s Responsibility to deposit in ESI A/c.
• Non- Availability of funds should not be a ground for non payment.
• Can not be waived the provisions w.r.t. Contribution, Damages &
Interest.

Rate :
• Employer : 4.75%
• Employee : 1.75%

CA. A. JOHN MORIS

 Employees State Insurance Act,
1948
Benefits under the Act :

• Section provided : Section 46

• Sickness Benefit
• Maternity benefit
• Disablement Benefit
• Dependents benefit
• Medical benefit
• Funeral Expenses

Exemptions :
• It should be notified in the Official Gezette.
• Maximum period 1Year
• Appr. Govt can renew upto 1 Year.

CA. A. JOHN MORIS

 Employees State Insurance Act,
1948

Offences & Penalties :

Punishment for False Statement :

• punishable with imprisonment, a fine upto Rs. 2,000/- or both

Punishment for False Statement :

• he is liable to imprisonment up to a period of 3 years.

Punishment for Other Contraventions:

• with imprisonment up to one year , with Fine up to Rs. 4,000/- or

with both.

CA. A. JOHN MORIS

THE PAYMENT OF
GRATUITY ACT, 1972

CA. A. JOHN MORIS

Meaning

Gratuity is a lump sum payment to employee when he

retires or leaves service.

It is retirement benefit to an employee

CA. A. JOHN MORIS

Objectives

The Payment of Gratuity Act, 1972 envisages to provide

a retirement benefit to the workmen who have
rendered long and meritorious services to the
employer.

CA. A. JOHN MORIS

Applicability
 Every factory (as defined in Factories Act), mine, oilfield, plantation,
port and railway.

 Every shop or establishment to which Shops & Establishment Act

of a State applies in which 10 or more persons are employed on
any day of the preceding twelve months.

 Any establishment employing 10 or more persons on any day of

the preceding twelve months as may be notified by the Central
Government.

 Once Act applies, it continues to apply even if employment strength

falls below 10.

CA. A. JOHN MORIS

Applicability - Exemption

 The Appropriate Government has power to exempt the

Employer or any Employee or class of Employees from
applicability of this Act,
 If in its opinion, the employee is in receipt of
gratuity or pensionary benefits not less favourable
than the benefits conferred under this Act.
 Such exemption may be issued retrospectively

CA. A. JOHN MORIS

Eligibility

Any person employed on wages/salary

Should have rendered continuous service of not less
than five years,

Gratuity is payable at the time of,
 Retirement or Resignation, or
 On superannuation, or

In case of death or disablement, the gratuity is payable,
even if he has not completed 5 years of service.

CA. A. JOHN MORIS

To whom is Gratuity Payable?

Gratuity is normally payable to the employee himself,

In the case of death of the employee,
 it shall be paid to his nominee or if nomination has
not been made, to his legal heirs.
 In case the nominee/heir is a minor, his share shall
be deposited with the controlling authority who
shall invest the same for benefit of the minor, until
he/she attains majority.

CA. A. JOHN MORIS

Benefits

For every completed year of service or part thereof in
excess of Six Months,

The employer shall pay gratuity to an Employee
at the rate of 15 Days Wages based on the rate of wages
last drawn by the Employee concerned.

CA. A. JOHN MORIS

Benefits Cont… - Piece Rate Employee

Daily wages shall be computed,

 On the average of Total Wages received by him

for the period of Three Months
 Immediately preceding the termination of his
employment.

For this Purpose, overtime work shall not be taken into

account.

CA. A. JOHN MORIS

Benefits Cont… - Seasonal Employee

The employer shall pay gratuity at the rate of Seven

Days Wages for each Season.

CA. A. JOHN MORIS

Calculation of Gratuity

Amount of Gratuity for Monthly rated Employee,

=15 Days’ Wage x Number of years of

Service

Wage = (Basic + DA) as per Last drawn Salary

15 Days’ Wage = Last drawn Monthly Wage x 15

26

CA. A. JOHN MORIS

Maximum Amount of Gratuity

 The amount of Gratuity payable to an employee shall

not exceed Ten Lakh Rupees.

 In case where higher benefit of gratuity is available

under any gratuity scheme of the Company, the
employee will be entitled to such higher benefit

CA. A. JOHN MORIS

Gratuity Trust

Not mandatory to create a Gratuity Trust.

However to get benefit of Tax exemption and also to

start a Gratuity Insurance, the Trust is mandatory.

Gratuity Trust is not a public trust.

It has to be approved by Income Tax Commisioner of

your circle under whose jurisdiction it falls.

The Company should nominate 3 trustees who

should not be directors of the company or its family
members.

CA. A. JOHN MORIS

Gratuity Trust – Contd…
Contd…

Privately Managed Trust:
◦ Investment of funds will have to be done as per
Income-Tax Act by the trustees and
◦ Entire administration of the Trust including Actuarial
Valuation will be the responsibility of the Trustees.

Trust managed by Insurance Company:

◦ Investment and actuarial valuation are taken over by
the Insurance Company free of charge and
◦ In addition, interest is paid by the Corporation on the
accumulated funds.

CA. A. JOHN MORIS

Gratuity Trust – Procedures for
Formation

Board resolution to be passed

Appoint the Trustees

To Draft and execute the trust deed and rules in
consultation with the Insurance company

Create a Fund

Apply to Commissioner of Income tax for
approval

To forward to the Insurance Company, a copy of
trust deed and rules

Approval from concerned income tax
commissioner is required for every changes in the
trust deed.

CA. A. JOHN MORIS

Gratuity – Few Important Forms
Format

Notice of Notice of Closure Nomination

Opening

Application for
Gratuity by an Employee

Notice for Application for Notice for

Payment of Gratuity Direction Payment of Gratuity

CA. A. JOHN MORIS

Insurance of Gratuity liability
 Section 4A provides that every employer must obtain
insurance of his gratuity liability with LIC

 However this section is not in force as the date from

which this section comes into effect has not yet been
notified.

CA. A. JOHN MORIS

Forfeiture of Gratuity

When service has been terminated for any act or willful
omission or negligence causing,
 Any damage or loss to, or
 Destruction of, property belonging to the employer,
 Gratuity shall be forfeited to the extent of the
damage or loss caused.

CA. A. JOHN MORIS

Gratuity shall be wholly or partially
forfeited:
 If the services of such employee have been terminated
 for his riotous or disorderly conduct, or
 any other act of violence on his part, or

 Ifthe service of such employee have been

terminated for any act which constitutes an offense
involving moral turpitude committed by him in the
course of his Employment.

CA. A. JOHN MORIS

Other important provisions…
 Section 8
 If Gratuity is not paid within the prescribed time,
the aggrieved person may apply to Controlling
Authority.

 He shall after giving opportunity of being heard to

the Employer, authorise the Collector to recover
the same together with compound interest as
arrears of land revenue

CA. A. JOHN MORIS

Other important provisions…

 Sec13 - Gratuity payable cannot be attached in

execution of any decree or order of any civil, revenue
or criminal court.

 Sec 14 – This Act or any rule made there under

overrides any enactment other than this Act or in any
Instrument or Contract having effect by virtue of any
enactment other than this Act.

CA. A. JOHN MORIS

SUPERANNUATION FUND

CA. A. JOHN MORIS

Meaning

Superannuation Fund is a retirement
benefit given to employees by the
Company.

Normally the Company has a link with
agencies like LIC Superannuation Fund,
where their contributions are paid.

CA. A. JOHN MORIS

Contributions to the Fund

The Company pays 15% of basic wages as
superannuation contribution.

There is no contribution from the
employee.

Interest on contributions is credited to
the members account. Normally the rate
of interest is equivalent to the PF interest
rate.

CA. A. JOHN MORIS

Payment of Fund

On attaining the retirement age, the
member is eligible to take 25% of the
balance available in his/her account as a
tax free benefit.

The balance 75% is put in a annuity fund,
and the agency (LIC) will pay the member
a monthly/quarterly/periodic annuity
returns depending on the option
exercised by the member. This payment
received regularly is taxable.

CA. A. JOHN MORIS

In case of resignation of employee

In the case of resignation of the employee,
the employee has the option to transfer
his amount to the new employer.

If the new employer does not have a
Superannuation scheme, then the
employee can withdraw the amount in
the account, subject to deduction of tax
and approval of IT department, or retain
the amount in the Fund, till the
superannuation age.

CA. A. JOHN MORIS

Cont.…..

Normally Companies do not extend the
Superannuation benefits to all employees-
but only to a specific category of
employees – like for example Level-1 of
Managers onwards..

CA. A. JOHN MORIS

info@ajohnmoris.com
CA. A. JOHN MORIS