RETIREMENT BENEFITS

A. Employees Provident Fund and Miscellaneous Provisions Act,

1952
Provident fund is a form of retirement benefit, but unlike gratuity, where all the financial
burden falls on the employer, this is contributory in the sense that besides putting in
service, a worker has also to contribute a part of his wages. The scheme of provident fund
has been brough within the purview of Employees Provident Fund and Miscellaneous
Provisions Act, 1952.

Note: EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952. The scheme is managed under the aegis of Employees' Provident
Fund Organisation (EPFO).

Object
Employees Provident Fund and Miscellaneous Provisions Act, 1952 is a piece of social
legislation designed to insure workmen against old age and infirmity. It provides for the
institution of provident fund for employees in factories and establishments. The object of
the Act is to provide for security to the industrial worker on his retirement and benefits
to dependents in case of death.
Andhra University v. Regional Provident Fund Commissioner of Andhra
Pradesh (1985) (see the facts of the case)

Scope and Coverage

The EPF Act applies-

(a) To every establishment which is a factory engaged in any industry specified in
Schedule I and in which Twenty or more persons are employed, and
(b) To any other establishment employing twenty or more persons or class of such
establishments which the Central Government may, by notification in the Official Gazette,
specify in this behalf.
However, the Central Government may, after giving not less than two months’ notice of
its intention so to do, by notification in the Official Gazette, apply the provisions of this
Act to any establishment employing such number of persons less than twenty as may be
specified in the notification.

Definitions
1. Employee:
Sec 2 (f) defines “employee” to mean any person who is employed for wages in any kind
of work, manual or otherwise, in or in connection with the work of an establishment and
who gets his wages directly or indirectly from the employer, and includes any person,-
(i) Employed by or through a contractor in or in connection with the work of the
establishment;
(ii) Engaged as an apprentice, not being an apprentice engaged under the Apprentice Act,
1961 (52) of 1961) or under the standing orders of the establishment;
2. Exempted Employee and Exempted Establishment

The concept of “Exempted Employee and Exempted Establishment” are defined in

clauses (ff) and (fff) of Section 2 of EPF Act as under:
(ff) “exempted employee “means an employee to whom a Scheme or the Insurance
Scheme, as the case may be, would, but for the exemption granted under section 17, have
applied;
(fff) “exempted establishment” means an establishment in respect of which an exemption
has been granted under section 17 from the operation of all or any of the provisions of any
Scheme or the Insurance Scheme, as the case may be, whether such exemption has been
granted to the establishment as such or to any person or class of persons employed
therein;

3. Excluded Employee
Sec 2(f) "excluded employee" means—
(i) an employee who, having been a member of the Fund, withdrew the full amount of his
accumulations in the Fund under clause (a) or (c) of sub-paragraph (1) of paragraph 69;

(ii) an employee whose pay at the time he is otherwise entitled to become a member of
the Fund, exceeds [fifteen thousand rupees] per month;

Explanation : --'Pay' includes basic wages with dearness allowance [retaining allowance
(if any) and cash value of food concessions admissible thereon;]
(iii) an apprentice.

Explanation :-- An apprentice means a person who, according to the certified

www.epfindia.gov.in 19 standing orders applicable to the factory or establishment, is an
apprentice, or who is declared to be an apprentice by the authority specified in this behalf
by the appropriate Government;

Circumstances in which accumulation in the fund are payable to a member

Section 69 of the Scheme lays down the circumstances in which accumulations in the
Fund are payable to a member
(1) A member may withdraw the full amount standing to his credit in the Fund—
(a) On retirement from service after attaining of the age of 55 years:
Provided that a member, who has not attained the age of 55 years at the time of
termination of his service, shall also be entitled to withdraw the full amount standing to
his credit in the Fund if he attains the age of 55 years before the payment is authorized;

(b) on retirement on account of permanent and total incapacity for work due to bodily or
mental infirmity duly certified by the medical officer of the establishment, or where an
establishment has no regular medical officer, by a registered medical practitioner
designated by the establishment;
(c) immediately before migration from India for permanent settlement abroad [or for
taking employment abroad];

(d) on termination of service in the case of mass or individual www.epfindia.gov.in 76

retrenchment;

(dd) on termination of service under a voluntary scheme of retirement framed by the

employer and the employees under a mutual agreement specifying, inter alia, that
notwithstanding the provisions contained in sub-clause (a) of clause (oo) of section 2 of
the Industrial Disputes Act, 1947, excluding voluntary retirements from the scope of
definition of "retrenchment" such voluntary retirements shall for the purpose be treated
as retrenchments by mutual consent of the parties;

(e) in any of the following contingencies, provided the actual payment shall be made only
after completing a continuous period of not less than [two months] immediately
preceding the date on which a member makes the application for withdrawal:—
(i) where a factory or other establishment is closed but certain employees who are not
retrenched, are transferred by the employer to other factory or establishment, not covered
under the Act;
(ii) where a member is transferred from a covered factory or other establishment to
another factory or other establishment not covered under the Act, but is under the same
employer; and
(iii) where a member is discharged and is given retrenchment compensation under the
Industrial Disputes Act, 1947 (14 of 1947)] or;

(f) For the purpose of clause (d) of sub-paragraph (1)—

(i) where an establishment has been closed, the certificate of any registered medical
practitioner may be accepted;
(ii) where there is no medical officer in the establishment, the employer shall designate a
registered medical practitioner stationed in the vicinity of the establishment; or
(iii) where the establishment is covered by the Employees' State Insurance Scheme,
medical certificate from a medical officer of the Employees' State Insurance Dispensary
with which, or from the Insurance Medical Practitioner with whom, the employee is
registered under that Scheme, shall be produced:
(iv) A member suffering from tuberculosis or leprosy [or cancer] even if contracted after
leaving the service of an establishment on grounds of illness but before payment has been
authorised, shall be deemed to have been permanently and totally incapacitated for work.

Modern Transportation Consultation Services Pvt. Ltd. v. Central

Provident Fund Commissioner, Employees Provident Fund Organization
2019 (see the facts of the case)
Non Applicability of the Act to certain establishments

The act is not applicable

(a) to any establishment registered under the Co-operative Societies Act, 1912 (2 of 1912),
or under any other law for the time being in force in any State relating to cooperative
societies employing less than fifty persons and working without the aid of power; or
(b) to any other establishment belonging to or under the control of the Central
Government or a State Government and whose employees are entitled to the benefit of
contributory provident fund or old age pension in accordance with any Scheme or rule
framed by the Central Government or the State Government governing such benefits; or

(c) To any other establishment set up under any Central, Provincial or State Act and whose
employees are entitled to the benefits of contributory provident fund or old age pension
in accordance with any scheme or rule framed under that Act governing such benefits;

If the Central Government is of opinion that having regard to the financial position of any
class of establishment or other circumstances of the case, it is necessary or expedient so
to do, it may, by notification in the Official Gazette, and subject to such conditions, as may
be specified in the notification, exempt [, whether prospectively or retrospectively,] that
class of [establishments] from the operation of this Act for such period as may be specified
in the notification.

Yashwan Gramin Sikshan Sansthan Sanstha v. Assistant Provident Fund

Commissioner, 2018 (see the facts of the case)

Power to exempt
Section 17 empowers the appropriate Government to exempt, whether prospectively or
retrospectively, from the operation] of all or any of the provisions of any Scheme.
The exemption is granted to :
(a) any [establishment] to which this Act applies if, in the opinion of the appropriate
Government, the rules of its provident fund with respect to the rates of contribution are
not less favourable than those specified in section 6 and the employees are also in
enjoyment of other provident fund benefits which on the whole are not less favourable to
the employees than the benefits provided under this Act or any Scheme in relation to the
employees in any other [establishment] of a similar character; or

(b) Any [establishment] if the employees of such [establishment] are in enjoyment of

benefits in the nature of provident fund, pension or gratuity and the appropriate
Government is of opinion that such benefits, separately or jointly, are on the whole not
less favourable to such employees than the benefits provided under this Act or any
Scheme in relation to employees in any other [establishment] of a similar character.
However, all such exemption shall be made only after consultation with the Central
Board.
Schemes in operation under the Act
The following three schemes are in operation under the Act
1. Employees’ Provident Fund Scheme 1952.
2. Employees’ Deposit Linked Insurance Scheme, 1976.
3. Employees’ Pension Scheme, 1995

A. Employees’ Provident Fund Scheme 1952.

Section 5 of the Act empowers the Central Government to frame a scheme to be called the
EPF Scheme :
a) for employees or for any class of employees and
b) establishments or class of establishment to which the said Scheme shall apply . Further,
there shall be established, as soon as may be after the framing of the Scheme, a Fund in
accordance with the provisions of this Act and the Scheme.
The Fund shall vest in, and be administered by, the Central Board constituted under
section 5A.
Subject to the provisions of this Act, a Scheme framed under sub-section (1) may provide
for all or any of the matters specified in schedule II.
A Scheme framed under sub-section (1) may provide that any of its provisions shall take
effect either prospectively or retrospectively on such date as may be specified in this behalf
in the Scheme.]

Sec 2 (h) defines “Fund” as the Provident Fund establishment under a Scheme;
Sec 2 (l) defines “Scheme” as the Employees’ Provident Funds Scheme framed under
section 5.

B. Employees’ Deposit Linked Insurance Scheme, 1976.

Under Sec 6C, the Central Government may, by notification, in the Official Gazette, frame
a scheme to be called the Employees’ Deposit-linked Insurance Scheme for the purpose
of providing life insurance benefits to the employees of any establishment or class of
establishments to which this Act applies.
There shall be established, as soon as may be after the framing of the Insurance Scheme,
a Deposit-linked Insurance Fund into which shall be paid by the employer from time to
time in respect of every such employee in relation to whom he is the employer, such
amount, not being mare that one per cent. of the aggregate of the basic wages, dearness
allowance and retaining allowance (if any) for the time being payable in relation to such
employee as the Central Government may, by notification in the Official Gazette, specify.
Explanation. - For the purposes of this sub-section, the expressions “dearness allowance”
and “retaining allowance” have the same meanings as in section 6.
The employer shall pay into the Insurance Fund such further sums of money, not
exceeding one-fourth of the contribution which he is required to make under sub-section
(2), as the Central Government may, from time to time, determine to meet all the expenses
in connection with the administration of the Insurance Scheme other than the expenses
towards that cost of any benefits provided by or under that Scheme.
The Insurance Fund shall vest in the Central Board and be administered by it in such
manner as may be specified in the Insurance Scheme.
The Insurance Scheme may provide for all or any of the matters specified in Schedule IV.
The Insurance Scheme may provide that any of its provisions shall take effect either
prospectively or retrospectively on such date as may be specified in this behalf in that
Scheme.

C. Employees’ Pension Scheme, 1995

Sec 6A. Employees’ Pension Scheme.- (1) The Central Government may, by notification
in the Official Gazette, frame a scheme to be called the Employees’ Pension Scheme for
the purpose of providing for-
(a) Superannuation pension, retiring pension or permanent total disablement pension to
the employees of any establishment or class of establishments to which this applies; and

(b) Widow or widower’s pension, children pension or orphan pension payable to the
beneficiaries of such employees.

Notwithstanding anything contained in section 6, there shall be established, as soon as

may be after framing of the Pension Scheme, a Pension Fund into which there shall be
paid, from time to time, in respect of every employee who is a member of the Pension
Scheme.
(a) Such sums from the employer’s contribution under section 6m not exceeding eight
and one- third per cent. Of the basic wages, dearness allowance and retaining allowance,
if any, of the concerned employees, as may be specified in the Pension Scheme;
(b) Such sums as are payable by the employers of exempted establishments under sub-
section (6) of section 17;
(c) The net assets of the Employees’ Family Pension as on the date of the establishment
of the Pension Fund;
(d) Such sums as the Central Government may, after due appropriation by Parliament by
law in this behalf, specify.

On the establishment of the Pension Fund, the Family Pension Scheme (hereinafter
referred to as the ceased scheme) shall ceased to operate and all assets of the ceased
scheme shall vest in and shall stand transferred to, and all liabilities under the ceased
scheme shall be enforceable against, the Pension Fund and the beneficiaries under the
ceased scheme shall be entitled to draw the benefits, not less than the benefits, they were
entitled to under the ceased scheme, from the Pension Fund.

B. Payment of Gratuity Act, 1972

Gratuity is a lump sum that a company pays when an employee leaves an organization,
and is one of the many retirement benefits offered by a company to an employee.
In India, gratuity rules and requirements are set out under the Payment of Gratuity
Act, 1972. An employer may also choose to pay gratuity outside of that which is
required by this Act.
The Payment of Gratuity (Amendment) Act, 2018 enables the government to raise the
limit of tax-free gratuity. The change can be made through an executive order by the
prime minister.
On February 1, 2019, India’s interim budget hiked the tax-free gratuity limit from Rs
20 lakh (US$27,904) to Rs 30 lakh (US$41,856). The government had doubled the tax
free gratuity to Rs 20 lakh (US$27,904) in March, 2018.
Applicability
The Payment of Gratuity Act, 1972 (the Gratuity Act) is applicable to employees
engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or
other establishments with ten or more employees. Gratuity is fully paid by the
employer, and no part comes from an employee’s salary.
To be eligible for gratuity under the Gratuity Act, an employee needs to have at least
five full years of service with the current employer, except in the event that an
employee passes away or is rendered disabled due to accident or illness, in which case
gratuity must be paid.
Gratuity is paid when an employee:
• Is eligible for superannuation;
• Retires;
• Resigns; or
• Passes away or is rendered disabled due to accident or illness (if an employee
passes away, gratuity will be paid to the employee’s nominee).
Specific cases regarding persons who are covered
a) Daily Wages covered: Chandrabhaga M. Dudhage v. Mahatma Phule
Krushi Vidyapeeth, Ahmednagar 2016. (read the facts of the case)
b) Working Journalist not covered: They are covered under WJNE Act.
c) Teachers not covered: Ahmedabad Pvt Teachers Association, Appellant v.
Administrative Officer 2004 (read the facts of the case)
Gratuity Calculation Formula
Gratuity in India is calculated using the formula:
Gratuity = Last Drawn Salary × 15/26 × No. of Years of Service
Notes:
• The ratio 15/26 represents 15 days out of 26 working days in a month.
• Last drawn salary = Basic Salary + Dearness Allowance.
• Years of Service are rounded down to the nearest full year. For example, if the
employee has a total service of 20 years, 10 months and 25 days, 21 years will be
factored into the calculation.
Tax Exemption
Gratuity received under the Gratuity Act is exempt from taxation to the extent that it
does not exceed 15 days’ salary for every completed year of service calculated on the
last drawn salary (subject to a maximum of US$41,856 or Rs 30 lakh).
Any other gratuity is exempt to the extent that it does not exceed one half-month salary
for each year of completed service calculated on the basis of average salary for 10
immediately preceding months. The upper limit of US$41,856 applies to the aggregate
of gratuity received from one or more employers in the same or different years.
Payment
The employer shall arrange to pay the amount of gratuity within 30 days from the date
it is billed to the person to whom the gratuity is allocated.
If the amount of gratuity payable under the section is not paid by the employer within
the period specified, he will have to pay simple interest on it from the date on which
the gratuity becomes payable at the rate not exceeding the rate stipulated by the
federal government.
Gratuity should be paid in cash, or if so desired by the payee, by demand draft or bank
check to the eligible employee, nominee, or legal heir.
Forfeiture
Sec 4 (6) of the Act states that the gratuity payable to an employee may be wholly or
partially forfeited] –
(i) 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 (ii) if the services of such employee
have been terminated for any act which constitutes an offence involving moral
turpitude, provided that such offence is committed by him in the course of his
employment.
1. Forfeiture of gratuity in case of loss or damage ( Jaswant Singh Gill v.
Bharat Cooking Coal Ltd 2007): read the facts of the case.
2. Forfeiture of gratuity in case of riotous or disorderly conduct etc. (Jorsingh
Govind Vanjari v. Divisional Controller 2017): read the facts of the
case.

In order to forfeit gratuity of an employee, there must be a termination order

containing charges as established to the effect that the employee was guilty of any of
the aforesaid misconducts. In one case, it has been held that in the absence of a
termination order containing any of the above allegations, the gratuity of an employee
cannot be forfeited.
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