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A 18 Ik
A 18 Ik
By
FCA ACS
AUDIT OF PROVIDENT FUND TRUSTS Introduction Formation of PF Trusts Audit of PF Trusts Recent Changes and Challenges
Introduction
What is a Provident Fund ? It is a mandatory, tax-qualified, defined, contribution retiral benefit plan wherein equal contribution at the specified rate is made by the employer and the employee and the same is payable in lump sum on retirement.
Introduction
Relevant Statutes are :
Employees
Act, 1952
Income
Tax Act,1961
Fund Act, 1925
Provident Indian
Introduction
Following three Schemes framed under the EPF & MP Act, 1952: Employees Provident Fund Scheme, 1952
Formation of PF Trusts
Options
Total
Compliance with RPFC Covered Trust for All Members Excluded Trust for Excluded Employees with Approval under Schedule IV part A of the Income Tax Act, 1961 Trusts for Both Covered and Excluded Employees
Formation of PF Trusts
Definition : "Excluded Employee" an employee of the Company to whom both of the following two conditions apply at the time of the coverage of the Company under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 or at the time of his joining the services of the Company, whichever is later. i His pay at the relevant time is more than Rs 6500/- per month. ii He does not have any current PF Balance.
Formation of PF Trusts
An Excluded Employees' Trust is one, which does not come under the purview of the PF Department, but its policies are framed based on the PF Act. The regulatory Statute is the Income Tax Act, 1961. The rate of contribution by the member can be any amount not exceeding his basic salary including DA (if any) The employer can decide to contribute any amount up to 12%. Employer contribution above 12% is taxable in hands of employees Employee Contributions eligible for Sec. 88 rebate / 80C Deduction Interest on Employer and Employee contributions are tax free However, withdrawls before completion of 5 years of membership, become taxable in year of withdrawal with condtitions.
Formation of PF Trusts
Apart from the financial benefits, some very important benefits become available to employees who are members of voluntary PF Trusts in comparison to the unexempted establishments :
Easy Availability of advances No hassles of Dealing with Public Departments Availability of Refundable advances Faster transfer of accumulations for outgoing members Faster settlement of final dues
Sushil Jeetpuria & Co Pioneer eServe Pvt Ltd 9
Formation of PF Trusts
Coverage Establishments employing 20 or more persons and engaged in any of the 177 industries / Businesses specified. Co-operative Societies, employing 50 or more persons & working without the aid of power. Establishments not coverable statutorily can opt for coverage. An establishment continues to be covered under the Act, irrespective of fall in the employment strength. Since the Act applies on its own force to the establishments, the employers are required to file the particulars in the specified format for registration and allotment of business number.
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Formation of PF Trusts
When can a company opt to set up an Exempted Trust ? Covered under the provisions of the PF &MP Act, 1952 Profit making Company 20 employees Pass a Board Resolution File for exemption with the RPFC Apply to the CIT for recognition of PF Trust On receipt of the approval from RPFC the Trust can comply as Exempt
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Cost Benefits
Particulars Un-exempted Establisment (%)
Administration Charges Inspection charges EDLI Charges EDLI Administration Charges Total Cost 1.10 Nil
0.50 0.01
0.50 0.01
1.61
0.69
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Formation of PF Trusts
EPS deduction, to be paid to the RPFC cannot be made from the Employee's contribution. The EPS deduction of 8.33% can be made only from the employer's contribution of 12% of Basic and DA. This is capped at Rs.6500/-
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Interest Payment Investment Pattern Valuation of Securities & Amortisation of Premium Settlements during the year Advances / Loans Meetings Submission of Returns Health of Securities
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However, An Excluded Employees' Trust / Private Trust may declare interest based on the earnings of the Trust.
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Investment Pattern prescribed for Provident Fund Trusts effective April 1, 2003
25% 30%
15%
30%
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AUDIT OF PROVIDENT FUND TRUSTS If an employee brings in a transfer from another approved Provident Fund Trust or RPFC then the service rendered with such an ex-employer is counted. Settlement can be done only after a waiting period of two months from the date of resignation For members going abroad, settlements can be done immediately Settlements are immediate in case of female members who resign from the services for the purpose of getting married.
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Any payment received from a Statutory Provident Fund,(i.e. to which the Provident Fund Act, 1925 applies) is exempt. Any payment from any other provident fund notified by the Central Govt. is also exempt. The Public Provident Fund(PPF) established under the PPF Scheme, 1968 has been notified for this purpose. Besides the above, the accumulated balance due and becoming payable to an employee participating in a Recognised Provident Fund is also exempt to the extent provident in Rule 8 of Part A of the Fourth Schedule of the Income Tax Act. There is no tax deduction if the member has put in five years of continuous service with the employer (includes period of past membership with previous employer/s if there is a transfer received). Otherwise, the member is liable for deduction of tax
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Act
Act
27
82.93
60 50 40 30 20 10 0
12.30
n th a
20.51
ta k
ja s
na
Ka r
Ra
States
Sushil Jeetpuria & Co Pioneer eServe Pvt Ltd 28
An d
hr a
Pr a
de
sh
PSU exposure
160 140 120
Rupees in Lacs
100 80 60 40 20 0
HD
BM
AB
IC
IF
SS
Rupees in Lacs
Fi na
Sector
Ir r
ig a
30
200
140.00
Rupees in Lacs
150
105.28 81.44 65.40 45.14
100
50
20.56
22.06 0.87
2 YEARS
3 YEARS
7 YEARS
8 YEARS
10 YEARS
11 YEARS
15 YEARS
Period of redemption
31
24 YEARS
1 YEAR
150 87.86 100 40.86 50 20.51 7.00 0 A AA+ AAA ASO UNRATED SOV
83.80
Rating
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change in two years Investment Pattern opened up Rate of Interest Accounting Standards Valuation of Investments FBT SAF
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Thank you!
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