Provident Fund – A Secure

Future
Revamped Effective 1st July 2008

Team HR
Top of the mind questions!!

• What is Provident Fund (PF) ?

• What happens to Contributions?
• Why are we revisiting PF now?
• Where do we maintain our PF Account?
• How has PF changed from last Year?
• How does PF reflect in my salary structure?
• What are the advantages of PF?
• Points to note about PF
• Advantage of EPF contribution in AMG

Team HR
Glossary

• PF : Provident Fund
• EDLI : Employees’ Deposit - Linked Insurance
• RPFC : Regional Provident Fund Commissioner
• EPFO : Employees Provident Fund Organization
• DA : Dearness Allowance
• Contribution : means a contribution payable in
respect of a member under the scheme
• Member : A member of the Fund

Team HR
What is Provident Fund ?

• Provident Fund and Miscellaneous Scheme Act was made an Act in 1952 as a social
Security measure.
• It contains three benefits:
– Provident Fund
– Family Pension
– Employees’ Deposit-Linked Insurance Scheme (EDLI)

• Employees and employers contribute equally for PF and Family Pension, while EDLI is
administered out of contributions made by Employer only.
• Provident Fund is a compulsory saving.
• It is applicable for all organizations having 10 or more employees using power and
employees drawing basic salary including Dearness Allowance up to Rs.6500/- per month.
• It has contribution from employer and deductions from employees salary
• Employers contribution is 12% where as employee has the option of contributing more as
voluntary PF.

Team HR
 What Happens to the Contributions?
• Employee’s Contribution : 12% of Basic is deducted from employees’ earning every month and deposited
in the PF Account.

• Employer’s contribution : 12% is split and deposited as :

8.33% in the Pension Fund

3.67% in the Provident Fund along with Employees’ share of 12%

• Employers & employees contribution to PF along with interest is accumulated in the PF account and the
same can be viewed in the Annual return & reconciliation statement issued by the PF authorities every
year for the period 1st April to 31st March, around June / July.

• The total amount is transferred to PF Account number of individual employee. PF Account number is
reflected in the Pay slip.
• The PF account is maintained either with Regional Provident Fund Commissioner (RPFC), an authority
under Act, or PF Trusts set up by organizations duly approved by PF and Tax Authorities. We started
maintaining the account with RPFC at Chennai from very beginning.
• The total deposit earns interest on closing annual balance. The rate of interest is decided and declared
by EPFO, Ministry of Labor, Govt. of India on an annual basis. The rate of interest will be same across the
country and companies.

Team HR
Withdrawal & Transfer:

Withdrawal & Transfer of Accumulations:

• Total deposit together with interest under Provident Fund can be withdrawn on meeting
conditions of retirement or migrating overseas or not working for a specific duration by
submitting Form 19 at old organization or can be transferred to new organization by filling up
Form 13 and submitting it to new organization.

• Employees get pension under Family Pension Scheme on attaining the age of retirement
and nominees get the pension on expiry of member for life or attaining certain age.

• In the event of death of the member covered under the act, the dependant family gets an
insurance amount.

• The accumulation is in the name of employee and it is his/her money. Employee receives
an annual statement of accumulations and interest earned from RPFC or EPF Trust, as the
case may be.

Team HR
Why are we revisiting PF now?

• To give an economic security post retirement to our employees

• To provide for security to dependant nominee family members of our employees

in case of death of a PF member

• Larger deposit, more secured self and family.

• The laterals always asked on joining “Why PF contributions are so low here”.

• Industry Practice: All Major IT companies have PF as a component @ 12% of

Basic Plus DA in the compensation structure

Team HR
Where do we maintain our PF Account

• Our organization is registered with Regional Provident Fund Commissioner

(RPFC), Chennai

• All employees have a unique account number with the RPFC. The employee’s
PF account number is reflected in Payslip.

• We had the option of choosing RPFC as Noida or Indore or Hyderabad or

Chennai in July 2007. We chose Chennai RPFC because market perception of
their efficiency.

Team HR
How has PF changed from last Year?

Pre 1st July 2007 Effective 1st July 2007 Effective 1st July 2008

PF was introduced as
PF has been
part of the salary
PF was not there revisited
structure
on the ground it is @
@
applicable for Basic
12% of basic salary
salary up to Rs. 12% 0f Basic
while freezing basic
6500/- per month Salary
salary at 6500 pm
and we had no
employee drawing
basic salary of 6500 Employers’ Contribution Employers’ Contribution
or less per month Is reflected as a is reflected as a
Component Of CTC component of AMG

Team HR
How has PF changed from last Year........Contd.
Before 1st July 2008 Effective 1st July 2008 - 10% increase + 9360

Component Monthly Annualized Component Monthly Annualized

Basic 13333 160000 Basic 18411 220928

HRA 5333 64000 HRA 7364 88371.2

Adhoc 5417 65000 Adhoc 8792 105509.44

Flexi Basket*     Flexi Basket*    

Medical 1250 15000 Medical 1250 15000

Conveyance 800 9600 Conveyance 800 9600

Transport Allowance / OYT 0 0 Transport Allowance / OYT 0 0

PDR 2000 24000 PDR 2000 24000

LTA 3000 36000 LTA 3000 36000

Child Education 200 2400 Child Education 200 2400

Telephone Reimbursement 2000 24000 Telephone Reimbursement 2000 24000

Employer’s Contribution to Provident

2209 26511
      Fund (PF) @ 12% Basic

Monthly Gross Salary 33333 400000 Monthly Gross Salary 46027 552320

Employer’s Contribution to
  9360  
Provident Fund @ 12% of 6500    

Gratuity Provision   7692 Gratuity Provision   10622

OYT / OYTA   10748 OYT / OYTA   10748

OYC   3495 OYC   3495

Medical Insurance Premium   3614 Medical Insurance Premium   3614

Group Personal Accident Group Personal Accident Insurance

  299   299
Insurance Premium Premium

Group Term Life Insurance

  1011 Group Term Life Insurance Premium   1011
Premium

Hot Skill Allowance   0 Hot Skill Allowance   0

Relocation Allowance   0 Relocation Allowance   0

Joining Bonus   0 Joining Bonus   0

Cost Team HR
to Company   436219 Cost to Company   582109
How does PF reflect in my salary structure?

• EMPLOYER CONTRIBUTION TO PF:

• Employer contribution to PF is shown as part of the AMG (Annualized

Monthly Gross)

Employer
Contribution to
PF

Team HR
Contd….

• EMPLOYEE CONTRIBUTION TO PF:

• Employees contribution to PF is shown as a deduction in the pay slip

Employee
Contribution to
PF

Team HR
What are the advantages of PF?
• It is a secure savings plan

• Employees and their families are eligible for income in the case of death, disability or

retirement

• Employer’s contribution (from Annual Monthly Gross) is totally tax exempt.

• Employee’s Contribution is eligible for Sec. 88 rebate / 80C Deduction

• Income generated by the fund is tax exempt. Interest on Employer and Employee
contributions are tax free

• Advances / Loans for specific reasons can be availed from the provident fund corpus

• Employees PF account is portable between employers.

• The accumulations cannot be attached by in case of default of loans

Team HR
Points to note about PF

• Withdrawal of PF before completion of 5 years of membership, become taxable in

the year of withdrawal with conditions

• Employer contribution above 12% is taxable in hands of employees

• The rate of contribution by the member can be any amount not exceeding his basic
salary including DA (if any)

• On resignation, the member can settle the account. i.e., the member gets his PF
contribution, Employer Contribution and Interest if he opts for a closure ( on meeting
conditions specified in the Act) or can transfer the account to the new employer

Team HR
Company’s Contribution as part of AMG !!!

• Advantages to employees:

– Higher Leave encashment value : Basic salary is 40% of AMG

– Higher value under Legacy SAP Program : Twice last drawn Monthly Gross salary

– Higher Value of Gratuity : Gratuity is on basic salary & Basic is 40% of AMG

– Higher net increase next year with similar percentage increase as base is higher

Team HR
Team HR