As part of the social security measures, the government introduced a mandatory savings scheme for non-government employees through the Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 (PF Act). As per this Act, employees and their employers are required to make a contribution to the Employees’ Provident Fund Scheme subject to certain conditions. An employer who is registered under the PF Act can either make monthly contributions to the scheme set up by the government or to a private trust set up by itself.
Approval for setting up an in-house trust under the PF Act may be granted to an entity, subject to certain conditions. The entity is required to make an application through the jurisdictional Regional Provident Fund Commissioner to exempt it from the operation of the statutory provident fund scheme and operate the PF trust.
If the authority is satisfied that the benefits provided to the employees under the private provident fund trust are, on the whole, not less favourable than the benefits provided in the statutory scheme, then it may permit the entity to run its own trust instead of making contribution to the statutory scheme.
The Employees’ Provident Fund Organization (EPFO) conducts a full and thorough audit of all exempt/relaxed establishments and their accompanying Provident Fund trusts. In October 2011, the Provident Fund head office had issued instructions to its regional offices requiring them to audit Provident Fund trusts only for a specified period.
Also, a specified format was given by EPFO so as to report the findings of the compliance audit for necessary action.
Further, on August 13, 2015, the Provident Fund head office has issued revised instructions to its regional offices. As per the revised instructions:
* Compliance audit of employers and Private Provident Fund trusts is a key mechanism to secure compliance and ensure default management. It is the duty of the Regional Provident Fund commissioners to ensure compliance.
* Compliance audit of Private Provident Fund trusts should be conducted by the regional offices regularly on annual basis.
* Audit report for compliance audit should be furnished in the format prescribed by the Provident Fund head office.
Given the revised instructions by PF head office, the employers who have set up Private Provident Fund trusts should ensure that they are prepared for an audit by the authority to check compliance with all rules and regulations.
Some of the information/documentation requirements that need to be maintained by the employers to ensure effective compliance and audit by the EPFO are:
* Details of the establishment: PF Code allotment letter, confirmation under which regime the exemption/relaxation was granted, number of employees in exempt and excluded categories ;
* Remittances and returns: Confirmation of payment of all contributions and maintaining copies of monthly and annual returns filed with PF authorities
* Maintenance of claim settlements records
* Rate of return declarations: Confirmation that the rate of return declared to members is at least the rate declared by the Central government
* Confirmation of amounts invested, investment pattern and maintenance of documents relating to audit of accounts
During the compliance audit, if it emerges that the establishment has wilfully and persistently violated the conditions of exemption as prescribed under the PF Act, the Regional PF Commissioner can issue show cause notice to the establishment and trustees for withdrawing exemption.
The writer is senior tax professional, EY India. Views expressed are personal