Employee Provident Fund

& Gratuity
Payment of Gratuity Act, 1972
 Application of the act
It depends on two factors:
 First, he should be employed in the establishment in which
the act applies according to sec.1(3):

- Every factory, Mine, oilfield, plantation, port and railway

company;
- Every industry or establishment within the meaning of law,
in relation of shops and establishment of state, in which 10
or more people employed or were employed or people on
any day of preceding 12 months;

- As per the notification of central govt. in this behalf.

 Secondly, he should be employee as per sec.2(e):

Employees means any person (other than apprentice)

employed on wages on the establishment to do any skilled,
semiskilled, unskilled, manual or supervisory, technical or
clerical work. And now with new amendment, the definition
has been broad based as to include any person, employed
to do any kind of work. Thus the definition includes a teacher
as an employee under the Act.
 When is gratuity payable
 According to sec. 4(1) of this act, Gratuity is paid to
employees after rendering continuous service of 5 years:
- on his superannuation;
- on his retirement or termination;
- on his death or disablement due to accident or disease.
 Continue service mean
 Section 2(a) of The Payment of Gratuity Act defines as:
A workman shall be said to be in continuous service for a
period if he is, for that period, in uninterrupted service,
including service which may be interrupted on account of
sickness or authorized leave or an accident or a strike, which is
not illegal, or a lock-out or on account of non-employment or
discharge of such workman for a period which does not
exceed three months and during which period a substitute has
been employed in his place by the employer, or a cessation
of work which is not due to any fault on the part of the
workman.

This means it includes all approved leaves, legal strike, weekly

off everything. It does not mean that you have to be present in
the office for whole 365 days in a year.
 If an employee has completed 4 years and
240 days period is he eligible for Gratuity?
 Madras High Court judgment in the case of Mettur Beardsell Ltd. V/s Regional Labor
Commissioner (central) Madras and Others. In this judgment, the Madras High Court
declared that if an employee has completed 4 years 10 months and 18 days service
without break i.e. 240 days, it should be considered as completed 5 years under
section 2(a), 2(b), 2(c) and 2(e) of the Payment of Gratuity Act.

 Even honorable Supreme Court of India had given similar judgment. by virtue of the
judgment of Supreme Court rendered under the provisions of the Industrial Dispute
Act in Surendra Kumar Verma vs. Central Govt. Industrial Tribunal,[(1980) (4)
S.C.C.433)], it is enough that an employee has a service of 240 days in the preceding
12 months and it is not necessary that he should have completed one whole year’s
service. As the definition of continuous service in Industrial Dispute Act and Payment
of Gratuity Act are synonymous, the same principal can be adopted under the act also
and hence an employee rendering service of 4 year 10 months 18 days is considered
to have completed 5 years continuous service under sec.4(2) and thereby is eligible
for gratuity."
To whom gratuity is payable
 normally to employees
 in case of death to his nominees

** in case of no nomination has made, or been made is minor , then

controlling authority will deposit this money in the bank account for
the benefits of minor nominee/ nominees.
 Amount of gratuity payable

Gratuity = (Basic+DA)x 15 days x no. of years of service completed

26
Maximum salary payable under the gratuity act is Rs. 10,00,000/- sec.4(3).
Mode of payment of gratuity:
 Compliance for company
1. As soon as the Gratuity Act become applicable, you should inform
to the controlling authority i.e. to The Labor Commissioner office under whose
jurisdiction your office falls in Form A.
2. Any changes in company's particular: The Employer must submit a Notice in Form
‘B’ to the Controlling Authority i.e. to labor commissioner of the area within 30
days of any change in the name, address, employer or nature of business.
Employer means Directors of the company.
3. Display of extract of the rules/ Act: you must display extract of the Act near the
main entrance of the company. I know it is difficult for a modern organization
specially MNC, please make it available on intranet site, so employee can access it.
It should be in English and in local language understood by majority of the
employee .
4. Notice of closure of establishment: Even if you wish to close your organization, a
notice under form C must be given to the controlling authority i.e. assistant
commissioner of labor/ commissioner of labor’s office. Basically, this provision is
made for safeguarding employees and to ensure all those who are eligible for
Gratuity gets their amount before closure of the company.
 Compliance for company
5. Nomination: Please ensure that your all employees have given
Nomination under payment of Gratuity Act. If not, circulate
nomination form to all employees, ask them to fill it and submit it.
Give them one copy back. It is very essential. It is also mandatory to
keep all the nomination form in safe custody. Please keep them in
employee's HR file or any other place from where it can be
produced as and when required. Form F.

6. Informing employee and controlling authority about gratuity amount

payable: As and when Gratuity amount is payable, the calculation
should be shown to employee as well as to The Controlling Authority.
Determination, application and
notice for payment of gratuity
 Person eligible has to make an application to employer within 30
days when it fell due;
 In case of death, legal heir should make an application within 1 year
from the gratuity become payable;
 As soon as gratuity become payable, employer must determine the
gratuity even before application is made and must send the notice
to the person to whom it is applicable;
 Within 15 days of receiving of application, employer shall:
- If claim is admissible, send notice within 30 days
- If claim is inadmissible, send notice on form ‘M’
- To be paid within 30 days from the date it becomes applicable
- If not paid within 30 days, simple interest from the payable date to
paid date
 No interest if delay is due to employees fault.
 Procedure to get
gratuity
 Submit Application in form I by employee or
Application in form J by nominee (If employee is not
alive) or Application in form K by legal heir (if
employee is not alive).

 Submit the application to the employer within 30

days from the date of it becomes payable. The
employer shall pay the gratuity within 30 days from
the receipt of the application. For belated payment
the employer is liable to pay 10% simple interest
also.
 Gratuity disputes
 In case of any disputes w.r.t gratuity, the amount must be
deposited with the controlling authority and application
must be made to authority for direction within 90 days of
occurrence in form N;
 Controlling authority shall make inquiries and if claim is
found admissible, direct payment is made to the person
entitled;
 Such issue of direct payment to employer within 30 days
from the date of receipt of the same by the employer;
 Gratuity disputes
 Appeal:
• The appeal is made by the person who is aggrieved by the
order of controlling authority;
• Limitation- 60 days from the date of receipt of order which is
further extended to 60 days more on sufficient causes;
Gujarat vs. Dr.R on 30 August, 2011
• Appeal is not maintainable if certificate of claiming gratuity
amount issued by controlling authority is not maintainable.
 Disputes as to gratuity

APPEAL PROCEDURE

Necessary entry is made in the record on

receipt of decision of appellate authority

Notice is issued to employer to direct him to

make payment of gratuity to employee within
15 days of receipt of notice
 Forfeiture of gratuity
(gratuity of employee who has terminated)
 This act deal with issue in 2 parts:
 Section 4(6)(a): employee whose service have been
terminated for the act of willful omission or negligence
causing any damages or loss or destruction of property
belonging to employer, gratuity shall be forfeited extent of
damages. In absence of proof of extent of damage, the
right of forfeiture is not available.

 Section 4(6)(b): employee have been terminated:

a) For riotous or disorderly conduct or any act of violence.
b) For act which constitute offence involving moral turpitude
provided that such offence committed by them in the
course of his employment.
 Recovery of gratuity
 If the amount of gratuity payable under this act is not paid by the
employer, within the prescribed time, to the person entitled thereto;
the controlling authority shall, on application made to it, issue a
certificate for that amount to the collector, who shall recover the
same, together with compound interest thereon as such rate as the
central govt. specify, from the date of expiry of prescribed time, as
arrear of land revenue and pay the same to the person entitles
thereto.

 Provided that controlling authority shall, before issuing a certificate

under this sec. give the employer a reasonable opportunity of
showing cause against the issue of such certificate.

 The amount of interest payable shall , in no case exceed the

amount of gratuity payable under this act.
 Exemption of gratuity
 appropriate govt. may grant exemption:

To whom: to establishment, factory and employee or class of

employees employed in any establishment, factory etc.

When: if they are receipt of gratuity or pensionery benefits not less

favorable than act.
 Nomination
 To be made after completion of 1 year of service.
 An employee may in his nomination, distribute the amount of gratuity
payable to him, under this act amongst more than one nominee.
 If an employee has a family at the time of nomination, the nomination
shall be made in favor of one or more members of his family, and any
nomination made by such employee in favor of any person who is not
an family member ,will be void.
 If at the time of making a nomination the employee has no family, the
nomination may be made in favor of any person but if the employee
subsequently acquires a family, such nomination will become void.
 A nomination may, be modified by employee at any time, after giving a
written notice to his employer in such form and in such manner as
prescribed, of his intention to do so.
 Every nomination, fresh nomination or alteration of nomination, as the
case may be, shall be sent by employee to his employer, who shall
keep the same in he safe custody.
 Cognizance of offence
 No court shall take cognizance of offence punishable under this
act save on a complaint made by or under the authority of the
appropriate govt.
 Gratuity if not paid or received, within 6 months from the expiry of
the prescribed time, the appropriate govt. shall authorize the
controlling authority to make a complaint against the employer,
whereupon controlling authority shall, within 15 days from the date
of authorization.
 No court inferior to that of the metropolitan magistrate or judicial
magistrate of the first class shall try any offence punishable under
this act.
 Penalties

offences penalties
• False statement to avoid • 6 months imprisonment or
payment Rs. 10,000 or both
• Default In complying with • 3months to 1year
act imprisonment or Rs. 20,000 or
both
• Non-payment of gratuity
• 6 months to 2 years
imprisonment
 Rights and obligation of the
employer
 Employer duty to determine and pay gratuity:
• Section 7(2): lays down as soon as gratuity become payable the
employer shall, whether an application has been made or not,
determine the amount of gratuity and give notice in writing to the
person to whom gratuity is payable.

• Section 7(3): employer shall pay the gratuity within 30 days from the
date it become payable.

• Section 7(3A): under sub section, if gratuity is not paid within

specified period then gratuity becomes payable along with simple
interest at the rate of 10% p.a.

• Section 7(4(e): if the disputes relates to the amount of gratuity

payable , the employer shall deposit the amount with controlling
authority such amount as he admits to be payable by him.
 Rights and obligation of
employee
 Application for payment of gratuity:
• Section 7(1): person eligible to gratuity, to act on his behalf shall
send a written application on this behalf.

• Rule 7: the payment of gratuity rules, 1972 provides that the

application shall be ordinarily made within 30days from the date
of gratuity becomes payable.
• In case of superannuation or retirement of employee is known,
the employee may apply before 30 days of superannuation or
retirement.
• Rule 7(2): A nominee of employee is eligible for gratuity in case
death of employee shall apply within 30 days from the date it
becomes payable to him.
 Forms
Form Description Attachment
Form A Notice of Opening
Form B Notice of Change ---
Form C Notice of Closure
Form D Notice for excluding
husband from family

Form E Notice of withdrawal

of notice for excluding
husband from family

Form F Nomination
Form G Fresh Nomination
 Forms
Form Description Attachment

Form H Modification Of Nomination

Form I Application for gratuity by an

employee
Form J Application for gratuity by a
nominee
Form K Application for gratuity by a
legal heir

Form L Notice for payment of gratuity

Form M Notice rejecting payment of

gratuity
Form N Application for direction
Form
Forms
Description Attachment
Form O Notice for appearance
before the controlling
authority
Form P Summons
Form Q Particulars of application
under Section 7
Form R Notice for payment of
Gratuity
Form S Notice for payment of
Gratuity as determined by
appellate authority
Form T Application for recovery of
gratuity
Form U Display of abstract of the act
and rules
 28
The Employee’s Provident
Fund Act 1952
The Employee’s Provident Fund Act 29
1952

 The Employee’s Provident Funds Act 1952

 Employer role & responsibility

 Employee role & responsibility

 The Employees Pension Scheme 1995

 List of Forms
Introduction 30

SALARY CONSISTS OF TWO PARTS I.E. EARNINGS &

DEDUCTIONS

PROVIDENT FUND IS ONE OF THE STATUTORY

DEDUCTION DONE BY THE EMPLOYER AT THE TIME OF
SALARY PAYMENT

PROVIDENT FUND IS GOVERNED BY THE EMPLOYEE’S

PROVIDENT FUND ACT 1952
The Employee’s Provident Fund Act 1952
Introduction 31
 Provident Fund has come into force to give better future
to employees on their retirement & his dependants in
case of his death during employment
 The Employees Provident Funds Act 1952 is compulsory
contributory fund for the future of an employee after
retirement or for his dependents in case of his early
death
 Act is applicable to all states of India except Jammu
and Kashmir

Application
 Every industry employing 20 or more persons (180
industries are specified in Schedule 1 of the Act)
 Every industry employing 20 or more persons which the
Central Govt. may notify
The Employee’s Provident Fund Act 1952
32
Eligibility & Entitlement
 Every employee employed directly / through a
contractor who is in receipt of wages are eligible to
become a member of the fund (exception - Apprentice
under the Apprentices Act and casual laborers)
 Irrespective of permanent / probationary employees, all
employees are eligible for joining the PF scheme from
the date of joining the service
 Maximum 12% of the basic pay+DA
 A member can contribute voluntarily more than
statutorily prescribed rate (upto 100% of basic salary)
which will be transferred to his PF A/c
The Employee’s Provident Fund Act 1952
33
Calculation
 12% contribution by the employee is directly transferred
to his Provident Fund A/c
 12% is contributed by the employer out of which 8.33% is
credited to Employee Pension Fund and the balance
3.67% is transferred to PF A/c of the employee
 1.10% Administration charges on total wages are
payable by the employer
 0.50% EDLI calculated on total EDLI slab (Rs. 15000)
wages and payable by the employer towards EDLI fund
 0.01% EDLI Administration charges calculated on total
EDLI slab wages are payable by the employer
The Employee’s Provident Fund Act 1952
Benefits 34
 Employees can take advances / withdraw the PF in case of
retirement, medical care, housing, family obligation,
education of children & financing of life Insurance Polices
 Upto 90% of the PF amount can be withdrawn at the age of
58 years or before one year of actual retirement
 PF amount of the deceased member is payable to nominees /
legal heirs
 Immediate income tax exemption under Sec 80C of IT Act
 Equal contribution by the employer
 Interest rate is usually higher than the prevailing market rate
(present interest rate @ 8.65%)
 PF A/c can be transferred if any member changes from one
establishment to other where the PF Scheme is applicable
 Totally tax free returns
The Employee’s Provident Fund Act 1952
35
Interest
 Interest is credited to the members PF A/c on monthly
running balance
 Interest rate is fixed by the Central Government in
consultation with the Central Board of trustees of EEPF
every year during March / April
 The present rate of interest is 8.65%

Nomination
 The member can nominate other person / persons to
receive the Fund amount in the event of his death
 The nomination details provided by the members are
maintained at the Regional Provident Fund Office for
use in the event of death of the member
The Employee’s Provident Fund Act 1952
36
Annual Statement of Account
 After the close of each year of contribution, annual
statement of account will be sent to each member
through establishment where the member was last
employed

 The annual statement of fund account will show the

opening balance at the beginning of the year,
contributions during the year, the amount of interest
credited at the end of the period and the closing
balance at the end of the year

 If any error is noticed in the annual statement, the

member shall bring the same to the notice of the PF
Office through employer within 6 months from the date
of receipt of the statement
The Employee’s Provident Fund Act 1952
Full Settlement
37
 PF A/c settled immediately under the circumstances;
 Retirement after 58 years
 Retirement on account of permanent incapacity
 Termination of service on retrenchment
 Voluntary Retirement Scheme (VRS)
 Permanent migration from India to settle abroad / taking
employment
 For female members leaving service for getting married

 PF A/c settled after two months under the circumstances;

 Resignation from the services
The Employee’s Provident Fund Act 1952
38
Advances / Withdrawals
 Purchase of site for construction of house / construction
of House / purchase of flat
 Additions / alterations / improvements to the house
 Repayment of loan
 Hospitalisation for more than a month / major surgical
operation / suffering from TB, Leprosy, Paralysis,
Cancer, Heart ailment etc
 Marriage of self / son / daughter / sister / brother
 Education of son / daughter
 Abnormal conditions like natural calamities
 Physically handicapped member for purchasing an
equipment to minimize the hardship due to handicap
The Employee’s Provident Fund Act 1952
39

Employer Role & Responsibility

The Employee’s Provident Fund Act 1952
Monthly Returns 40
 Filing monthly PF returns with the EPFO within 15 days of
the close of each month
 Provide list of new employees joined in the
establishment during the preceding month & are
qualified to become member in fund (Form-5)
 Provide list of employees leaving service during the
preceding month (Form-10)
 Employer should file 'Nil' returns if there is no new
employee or no employee leaving the service during
the preceding month
 Provide the total no. of members last month, new
members joined and existing members resigned in the
preceding month & total no. of present subscribers to
be fund (Form-12A)
The Employee’s Provident Fund Act 1952
Annual Returns
 Employer shall send to the Commissioner within one
month of the close of the year, a consolidated Annual
Contribution Statement (Form-6A) and individual
employee sheet (Form-3A) showing the contributions
made by the employees and employer during the year

Penalty
 12–37% interest is payable for the delayed period in
remitting contributions/ administrative charges
depending upon the delayed period

Exemption
 Employer can seek exemption from the Scheme if similar
/ better benefits are provided other than the Scheme
by forming a Voluntary PF Trust which will work under the
rules & regulations of EPFO
The Employee’s Provident Fund Act 1952
42

Employee Role & Responsibility

The Employee’s Provident Fund Act 1952

43
Provide details of self & nominees (Form-2) for PF & Pension
Scheme at the time of joining the establishment
 In case of already having PF A/c, apply for transfer of previous
A/c to the present A/c
 If willing to increase contribution, inform the same to the
employer to deduct the amount from the salary
(Voluntary Provident Fund).
 Voluntary PF can be upto 100% of Bacis+DA
 Understand that the employer is not liable to pay any
contribution on voluntary PF
 Periodically verify the details maintained by the employer
 Don't allow employer to deduct his share of contribution/
administrative charges payable by him from the wages
 Understand that Employees' Provident Fund Organization does
not have any agent / middlemen
The Employees Pension Scheme 1995
44

Employees Pension Scheme 1995

The Employees Pension Scheme 1995
Introduction 45
 To give long term protection / financial security to employee
upon retirement and his family in case of his pre-mature death,
family pension scheme has come into force by diverting 8.33%
contribution made by employer towards PF scheme

Application
 Scheme is compulsory for all the existing members who become
members of the Employees Provident Fund Scheme

Eligible
 Monthly pension to employees on retirement
 Widows on death of the member
 Children of the member below 25 years age
 Monthly pension to members upon permanent total disablement
during service
List of Forms
46

List of Forms
List of Forms
47
Forms For Claiming Benefits Under PF Scheme

Form Purpose

For transferring the PF A/c of a member from one

13
establishment to another establishment covered under
(revised)
the Act / Scheme
Application for financing a life insurance policy out of PF
14
A/c
To be submitted by a member to withdraw his PF dues
19
on leaving service / retirement / termination
In the event of death of member, this form is to be used
20 by a nominee / family member to claim the member's
PF accumulation
To be used by PF members to avail advances /
31
withdrawals as provided in the scheme
List of Forms
48
Forms For Claiming Benefits Under Pension Scheme

Form Purpose

For claiming :
- Refund of Employer share
10 C
- Withdrawal benefit
- Scheme certificate for retention of membership

To be submitted by the first claimant i.e.

- member
10 D
- widow / widower
- nominee