A provident fund (PF) is a retirement savings scheme many employers offer their employees as a benefit.
The scheme aims to help employees save a portion of their income during their working years, which they can later use to support themselves after retirement.
In a provident fund scheme, a portion of the employee's salary is deducted every month and contributed to the fund, along with a matching contribution from the employer.
ESI stands for Employee's State Insurance, which is a social security and health insurance scheme for Indian employees.
Under the ESI scheme, both the employer and the employee contribute a certain percentage of the employee's salary towards the scheme.
The contributions are then used to fund healthcare services and other benefits for employees, including:
- Adequate medical treatment for employees and family members
- maternity benefits
- disability benefits.
The applicability of PF and ESI in India is governed by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, and the Employees' State Insurance Act, 1948, respectively.
It is important for business owners to know about the various regulations around PF and ESI. This article discusses PF and ESI, focusing on their applicability.
What is Provident fund (PF)
Before we talk about the applicability, it is crucial to understand what exactly PF is. It is a retirement saving scheme where employees save a part of their salary for their retirement.
The scheme is designed to encourage long-term savings and provide financial security to employees during their post-retirement years.
In a provident fund scheme, a portion of the employee's salary is deducted every month and contributed to the fund, along with a matching contribution from the employer.
The funds are then invested in various financial instruments such as stocks, bonds, and other securities to generate returns.
The accumulated funds, including the returns on investment, are paid out to the employee upon retirement or termination of employment.
The amount of contribution to the PF is usually a fixed percentage of the employee's salary, and the contributions are tax-deductible up to a certain limit, which varies by country.
In addition to retirement benefits, some provident fund schemes may also offer other benefits such as medical insurance, disability benefits, and housing loans.
Government bodies or financial regulatory authorities typically oversee the management and regulation of provident funds.
The rules and regulations governing PFs vary by country and can be complex. Hence, employees need to understand the terms and conditions of the scheme offered by their employer before enrolling.
Applicability of Provident Fund
When we talk about PF applicability in India, the government has laid down a clear framework to make things easier.
There are certain points that business owners need to keep in mind to find out if they are required to avail of EPF. They are as follows:
- Employee strength: The EPF scheme applies to establishments that employ 20 or more employees. However, establishments with less than 20 employees can also voluntarily register for the scheme.
- Salary threshold: EPF contributions are mandatory for employees whose basic salary is up to Rs. 15,000 per month. Employees with a salary above Rs. 15,000 can choose to contribute voluntarily. It's worth noting that the 15,000 limit is subject to change by the government.
- Exemptions: Certain establishments or employees are exempt from the EPF scheme. For example, employees who are already covered under other retirement benefit schemes, such as the National Pension Scheme (NPS), are exempted from the EPF scheme. Similarly, establishments engaged in certain industries or activities, such as cinema exhibitions, newspaper establishments, and educational institutions, may be exempted from the scheme subject to certain conditions.
- Contribution rates: Both employers and employees are required to contribute 12% of the employee's basic salary towards the EPF. The contribution rate may be higher for certain establishments, such as those engaged in hazardous activities.
- Registration and compliance: Employers are required to register their establishment for PF within 30 days of hiring the first employee. They must also file regular returns and maintain records and registers as required by law.
Once you have established that your business must pay EPF, you can follow the steps below to file EPF.
- Register on the EPF portal: The first step to filing EPF is to register on the EPF portal. You can do this by visiting the EPF portal. After that, click on the 'Establishment Registration' option under the 'Establishment' tab. Enter your establishment details and follow the instructions to complete the registration process.
- Generate UAN: Once you have registered your establishment on the EPF portal, you need to generate Universal Account Number (UAN) for all your employees. You can do this by logging in to the employer portal with your establishment's details and clicking on the 'Member' tab. Then, select 'Register Individual' and enter your employees' details to generate UAN.
- Monthly contribution payment: Next, you need to calculate the EPF contribution for your employees and make the payment through the EPF portal. To do this, log in to the employer portal, go to the 'Payment' tab, and click on 'ECR/Return Filing.' Upload the contribution file in the specified format and make the payment through net banking.
- Generate monthly returns: After making the payment, you need to generate monthly returns. To do this, go to the 'Monthly Returns' tab and select 'ECR Upload.' Upload the month's contribution file and click 'Generate Challan.' The system will then generate a challan for you, which you need to download and keep for future reference.
- Update KYC details: It's essential to keep your employees' KYC details updated on the EPF portal. To do this, log in to the employer portal and go to the 'Member' tab. Select 'KYC' and enter your employees' KYC details, such as Aadhaar, PAN, bank account details, etc.
- Maintain registers: Finally, you need to maintain various registers, such as Form 3A, Form 6A, Form 5, etc., as required by law. These registers should contain details of your employees' EPF contributions, withdrawals, and other relevant information.
What is ESI
ESI stands for Employee's State Insurance, which is a social security and health insurance scheme for Indian employees.
The scheme is managed by the Employees' State Insurance Corporation (ESIC) and provides medical care and other benefits to workers who earn less than a specified amount per month and are employed in certain sectors.
Under the ESI scheme, both the employer and the employee contribute a certain percentage of the employee's salary towards the scheme.
The contributions are then used to fund healthcare services and other benefits for employees, including medical treatment for employees and their family members, maternity benefits, and disability benefits.
The ESI scheme is designed to provide financial protection to employees and their families against unforeseen medical emergencies and to ensure that employees have access to quality healthcare services.
The scheme has a network of hospitals and clinics that provide medical care to employees and their family members.
ESI is a crucial social security scheme in India that provides healthcare and other benefits to employees, especially those working in sectors with a higher risk of accidents and illnesses.
Applicability of ESI
There are certain points that business owners need to keep in mind when dealing with ESI. They are as follows:
- This Act applies to all non-seasonal factories that employ ten or more people and use electricity. It also applies to non-power-using manufacturing organizations and establishments that pay wages to twenty or more people and are located in an implemented geographic area. Employees of places of business, corporations, or factories that come under the coverage area and make no more than Rs. 15,000 per month are currently covered under this ESIC Scheme.
- The ESIC Act's provisions have been made applicable to the following types of establishments under Section 1(5) of the Act:
- stores and other commercial spaces
- theatres
- Accommodations & Dining
- Clubs
- Newspaper businesses
- businesses engaged in road motor transport
- Employee strength: The ESI scheme applies to establishments that employ 10 or more employees. However, establishments with less than 10 employees can also voluntarily register for the scheme.
- Salary threshold: ESI contributions are mandatory for employees whose gross salary is up to Rs. 21,000 per month. Employees with a salary above Rs. 21,000 can choose to contribute voluntarily.
- Exemptions: Certain establishments or employees are exempt from the ESI scheme. For example, establishments engaged in certain industries or activities, such as educational institutions, may be exempted from the scheme subject to certain conditions. Similarly, employees who are covered under other social security schemes, such as the EPF scheme, are exempt from the ESI scheme.
- Contribution rates: Both employers and employees are required to contribute to the ESI scheme. The employer's contribution rate is 3.25% of the employee's gross salary, while the employee's contribution rate is 0.75% of their gross salary.
- Registration and compliance: Employers are required to register their establishment for ESI within 15 days of hiring the first employee. They must also file regular returns and maintain records and registers as required by law.
Once you have established that your business must pay ESI, you can follow the steps below to file ESI.
- Register your company for ESI: If your company has not yet registered for ESI, you must visit the official website of the Employee State Insurance Corporation (ESIC) and register your company online. You will need to provide details such as your company's name, address, and number of employees.
- Obtain an ESI number: Once your company is registered, you will be assigned an ESI number. This number will be used for all future correspondence with the ESIC.
- Collect employee details: You will need to collect the details of all your employees who are eligible for ESI. This includes their name, address, Aadhaar number, and salary details.
- Generate challan: You will need to generate a challan for the ESI contribution, which will be paid monthly. This can be done on the ESIC website using your ESI number and the employee details you have collected.
- Pay ESI contribution: After generating the challan, you can pay the ESI contribution using online or offline modes. The contribution is generally 4% of the employee's salary, and the employer contributes an equal amount.
- File ESI return: Finally, you will need to file the ESI return for your company, a monthly return showing the contributions made by the employees and the employer. This can also be done on the ESIC website.
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Conclusion
The entire ESI and PF process is easy but incredibly time-consuming. From managing the KYC of employees to filing the PF and ESI return, it can take up a lot of precious time.
Especia is a leading tax advisory firm. We offer professional expertise in day-to-day direct tax services, tax risk management, domestic tax services, and other related tax consultation services.
Especia would help business owners save their precious time as the entire process of PF and ESI filing will be handled by us.
It is always a good idea to employ professional services like Especia, especially if you don’t have adequate knowledge and expertise.
FAQ’s Related to Applicability of PF and ESI
1. Can an employee contribute more than the mandatory amount to PF and ESI?
Yes, an employee can contribute more than the mandatory amount to PF and ESI if they wish to do so. The employer's contribution will remain the same irrespective.
2. Can an employee opt out of PF and ESI?
No, an employee cannot opt out of PF and ESI once they become eligible. These schemes are mandatory for all eligible employees.
3. Is it mandatory to register for PF and ESI?
Yes, it is mandatory to register for PF and ESI if your company meets the eligibility criteria. Non-compliance with these regulations can result in penalties and legal action.
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