In India, we have numerous laws which regulate the labor in the country and ensure to provide high degree of workers protection and manage the rules relating to the same. This blog describes the basic introduction and applicability of two most common and important funds to various organizations in order to ensure proper working of the system. These are Employee State Insurance (ESI) and Employee Provident Fund (EPF) schemes. ESI is a contributory fund whereby the employees in India are benefited through self-financing and healthcare insurance fund contributed by them and their employer. This scheme is administered and regulated as per the rules mentioned in the Indian ESI Act of 1948. Presently, the employee’s contribution rate (with effect from July1, 2019) is 0.75% of the wages and that of employer’s is 3.25% of the wages paid / payable in respect of the employees in every wage period. Under ESI scheme, during the first contribution period (April to September) if an employee’s gross pay has been increased from INR 18000 (below ESI limit of INR 21,000) to INR 25000 (above limit) in the month of June, the deductions will continue to happen till the end of the ESI contribution period i.e. September on the increased gross salary, i.e. INR 25000. However, there will be no further deductions, in case the 6 months contribution period ends, and the employee salary is no longer within ESI limit.
Statutory Compliance requirement for PF deduction Alike ESI, under EPF scheme also, both the employee and employer contribute an amount equal to 12% of employee’s salary for PF deduction subject to a minimum of INR 15000. Employee can contribute more amount to the fund but the capping for the employer is fixed at INR 1,800 pm (i.e. 12% of INR 15,000).There are some less known facts associated with it the statutory compliance of PF contributions. There are two types of contributions under PF for employer’s share, one part (i.e. 8.33%) goes directly to EPF and the remaining part (i.e. 3.67%) goes to the EPS (Employee pension Scheme) contribution. However, the employees’ contribution goes straight to EPF.
Payment of EPF and ESI amount The due date for payment of ESI and EPF contribution amount is 15th day of succeeding month. The payment under both the acts can be made with the help of respective challan that can be easily generated at the EPF and ESI portal via online mode. However, there will be levy of interest and penalty in case of delay in payment.
EPF and ESI withdrawal Amount accumulated in EPF account of an employee can be withdrawn subject to the condition that the employee is either retired from the employment; or he is unemployed as certified by a Gazetted Officer for a period of 2 months or more from his employment. The only details one requires for withdrawal purpose is the UAN (universal Account Number) as provided at the time of registration and follow the instructions as per EPF portal as per the requirement of the employee. However, any contributions made towards ESI fund can only be availed off as health benefits through a chain of dispensaries opened up in various areas of the country.
Interest on EPF EPF balance is also subject to interest income. However, the interest rate is reviewed on annual basis every year by EPFO’s Central Board of Trustees after consultation with the Ministry of Finance. For FY 2018-19, the interest rate on EPF balance has been increased to 8.65% from 8.55% for FY 2017-18. It is opportune to mention that there is no tax on the EPF interest till the retirement of the employee, but the same shall be taxable in the hands of employee if he/she retains the balance in EPF account thereafter and earns interest on the same at normal rates of taxation.
We can assist you for both the funds with the guidance on applicability, registration, calculation, generation of challans along with guidance for payment of EPF and ESI on monthly basis at the respective portals.
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