Company Provident Fund

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Company Provident Fund Powered By Docstoc
					                            Audit of
                         Provident Fund
                             Trusts
                                          By
                        Sushil Kumar Jain,            FCA ACS




                               June 18, 2005


                          Pioneer eServe Pvt Ltd
Sushil Jeetpuria & Co        Pioneer eServe Pvt Ltd             1
   AUDIT OF PROVIDENT FUND TRUSTS


   • Introduction
   • Formation of PF Trusts
   • Audit of PF Trusts
   • Recent Changes and Challenges




Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd   2
   Introduction

   What is a Provident Fund ?

     It is a mandatory, tax-qualified, defined,
     contribution retiral benefit plan
     wherein equal contribution
     at the specified rate
     is made by the employer and the employee
     and the same is payable in lump sum on
     retirement.


Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd   3
Introduction
Relevant Statutes are :

 Employees              Provident Fund & Miscellaneous Provisions
  Act, 1952
 Income         Tax Act,1961
 Provident             Fund Act, 1925
 Indian       Trusts Act, 1882



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Introduction
Following three Schemes framed under the EPF & MP Act, 1952:
     Employees’ Provident Fund Scheme, 1952
        - came into force from 1st November, 1952
     Employees’ Family Pension Scheme, 1971
                   - came into force from 1st March 1971
          Later replaced by Employees’ Pension Scheme, 1995
          with effect from 16th November, 1995
     Employees’ Deposit Linked Insurance Scheme, 1976
        - came into force from 1st August, 1976


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Formation of PF Trusts
Options

 Total Compliance with RPFC
 Covered Trust for All Members
 Excluded Trust for Excluded Employees
  with Approval under Schedule IV part A
  of the Income Tax Act, 1961
 Trusts for Both Covered and Excluded Employees




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Formation of PF Trusts
Definition :
"Excluded Employee"
 an employee of the Company
 to whom both of the following two conditions apply
 at the time of the coverage of the Company under the
 Employees' Provident Funds & Miscellaneous Provisions Act, 1952
 or at the time of his joining the services of the Company,
 whichever is later.

 i His pay at the relevant time is more than Rs 6500/- per month.

 ii He does not have any current PF Balance.


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Formation of PF Trusts
An Excluded Employees' Trust is one,
which does not come under the purview of the PF Department,
but its policies are framed based on the PF Act.
The regulatory Statute is the Income Tax Act, 1961.
 The rate of contribution by the member can be any amount not
 exceeding his basic salary including DA (if any)
     The employer can decide to contribute any amount up to 12%.
    Employer contribution above 12% is taxable in hands of employees
      Employee Contributions eligible for Sec. 88 rebate / 80C
    Deduction Interest on Employer and Employee contributions are
    tax free
      However, withdrawls before completion of 5 years of
    membership, become taxable in year of withdrawal with
    condtitions.


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                        Formation of PF Trusts
   Apart from the financial benefits, some very important
   benefits become available to employees who are
   members of voluntary PF Trusts in comparison to the
   unexempted establishments :

 • Easy Availability of advances
 • No hassles of Dealing with Public Departments
 • Availability of Refundable advances
 • Faster transfer of accumulations for outgoing
 members
 • Faster settlement of final dues

Sushil Jeetpuria & Co       Pioneer eServe Pvt Ltd   9
Formation of PF Trusts
Coverage
 Establishments employing 20 or more persons and engaged in any
  of the 177 industries / Businesses specified.
 Co-operative Societies, employing 50 or more persons & working
  without the aid of power.
 Establishments not coverable statutorily can opt for coverage.
 An establishment continues to be covered under the Act,
  irrespective of fall in the employment strength.
 Since the Act applies on its own force to the establishments, the
  employers are required to file the particulars in the specified format
  for registration and allotment of business number.




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Formation of PF Trusts

When can a company opt to set up an Exempted Trust ?
 Covered under the provisions of the PF &MP Act, 1952
 Profit making Company
 20 employees
 Pass a Board Resolution
 File for exemption with the RPFC
 Apply to the CIT for recognition of PF Trust
 On receipt of the approval from RPFC the Trust can
  comply as “Exempt”



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                           Cost Benefits
          Particulars Un-exempted                    Exempted Emp-
                      Establisment                   loyees Trust
                          (%)                            (%)
          Administration       1.10                      Nil
            Charges
           Inspection           Nil                      0.18
            charges

           EDLI Charges        0.50                      0.50
             EDLI              0.01                      0.01
          Administration
            Charges
           Total Cost          1.61                      0.69




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    Formation of PF Trusts

        EPS deduction, to be paid to the RPFC cannot be made
         from the Employee's contribution.

        The EPS deduction of 8.33% can be made only from
         the employer's contribution of 12% of Basic and DA.

        This is capped at Rs.6500/-




    Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd    13
AUDIT OF PROVIDENT FUND TRUSTS

Contributions:
 Statutory rate of contribution is 12% of emoluments
  (basic wages, dearness allowance, cash value of food concession and
  retaining allowances if any,) in the case of 177 establishments.
 Rate of contribution shall be 10% in case of the following:
  Brick, beedi, jute, guar gum factories, coir industry other than
  spinning sector.
 Establishments declared as sick undertakings by BIFR.
 Matching contribution is to be collected from the employees
 Out of 12% (or 10% as the case may be) of the employer’s share of
  contribution, 8.33% is to be remitted towards pension fund.
 Employer is also required to pay a contribution of 0.5% of the
  emoluments towards EDLIS’1976.
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     AUDIT OF PROVIDENT FUND TRUSTS

     Specifics :
•   Interest Payment
•   Investment Pattern
•   Valuation of Securities & Amortisation of Premium
•   Settlements during the year
•   Advances / Loans
•   Meetings
•   Submission of Returns
•   Health of Securities



    Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd      15
AUDIT OF PROVIDENT FUND TRUSTS
The Rate of Interest declared by EPFO
for FY 2003-04 and FY 2004-05
on PF contributions is 9.5% p.a.

An Exempted Trust cannot credit interest
less than the statutory rate of interest stipulated
even if the Trust is not able to earn the minimum interest.

In case of a shortfall, the Company has to make good the deficit.

However, An Excluded Employees' Trust / Private Trust
may declare interest based on the earnings of the Trust.


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Investment Pattern prescribed for Provident
Fund Trusts effective
April 1, 2003



                                                       25%
              30%


                                                                   Central Govt
                                                                   State Govt.
                                                                   PSU
                                                                   Flexible


                                                             15%


                        30%




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AUDIT OF PROVIDENT FUND TRUSTS

Effective April 1, 2005, vide Circular no F.No. 5(53)/2002-ECB&PR
Dated: January 24, 2005

 The Trustees, subject to their assessment of the risk-return
 prospects, may, if they so decide, divide the total portfolio under
 Central and State Government categories into tradable and non-
 tradable categories.

 Upto 10% of the total portfolio at the end of the preceding financial
 year can be treated as tradable and may be used for active
 management.



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AUDIT OF PROVIDENT FUND TRUSTS
Provided that the tradable portfolio of Government securities shall
 be marked to market and mutual funds, which have been set up as
 dedicated funds for investment in Government securities, shall be
 valued at Net Asset Value at the close of the financial year.

Flexible portion being 30% may be invested in any of the three
 categories as decided by their Trustees

Investment may be made in Shares of companies that have an
 investment grade debt rating from at least two credit rating
 agencies 5%




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AUDIT OF PROVIDENT FUND TRUSTS

Valuation of Securities & Amortisation of Premium :
 Guidelines in AS 13 cannot apply to PF Trusts

 Cost
 Face Value
 Cost or Market Value whichever is lower

 Amortise Premium but not discount




Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd   20
AUDIT OF PROVIDENT FUND TRUSTS

 Amortise Premium but not discount

 Income exempt
 Hold till maturity
 Trade

Valued at lower of cost or market value




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AUDIT OF PROVIDENT FUND TRUSTS
Settlements during the year
A member may completely withdraw the amount that has accrued in his
  account if:
 He retires at the age of 58.
 He retires – god forbid – because of permanent and total debilitation.
  This could be either mental or physical, but must be ‘permanent and
  total’ -- the scheme distinguishes between partial and total disabilities.
 He immigrates or takes up employment abroad.
 His services are terminated because of retrenchment in the company.
 He chooses to terminate his service under a voluntary retirement
  scheme.
 The establishment he works for shuts down.
 The organisation he works for shuts down, and he joins one that does
  not participate in the EPF scheme.
He can withdraw up to 90 per cent of the amount in his credit in the year
  before he retires -- that is, between the ages of 57 and 58.


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AUDIT OF PROVIDENT FUND TRUSTS
If an employee brings in a transfer from another approved
  Provident Fund Trust or RPFC
   then the service rendered with such an ex-employer is
  counted.
 Settlement can be done only after a waiting period of two
  months from the date of resignation
   For members going abroad, settlements can be done
  immediately
   Settlements are immediate in case of female members
  who resign from the services for the purpose of getting
  married.


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AUDIT OF PROVIDENT FUND TRUSTS
TDS on settlements
   Any payment received from a Statutory Provident Fund,(i.e. to which the
    Provident Fund Act, 1925 applies) is exempt.
   Any payment from any other provident fund notified by the Central Govt.
    is also exempt.
   The Public Provident Fund(PPF) established under the PPF Scheme,
    1968 has been notified for this purpose.
   Besides the above, the accumulated balance due and becoming payable
    to an employee participating in a Recognised Provident Fund is also
    exempt to the extent provident in Rule 8 of Part A of the Fourth Schedule
    of the Income Tax Act.
   There is no tax deduction if the member has put in five years of
    continuous service with the employer (includes period of past
    membership with previous employer/s if there is a transfer received).
    Otherwise, the member is liable for deduction of tax




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AUDIT OF PROVIDENT FUND TRUSTS
Advances / Loans from provident fund corpus:
 To buy life insurance policies.
 To buy land, or to build or buy a house.
 To repay any loans that he has taken to buy or build a house.
 To finance the treatment or hospitalisation of self or any
  member of the family.
 To finance the weddings or college expenses of his children.
 In special cases, where the establishment he works for is
  temporarily shut down, or if his services have been
  terminated and he has challenged that termination in court.
Loans are to be utilized for purpose else provision to add
  back to income



 Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd        25
AUDIT OF PROVIDENT FUND TRUSTS

Meetings : to be held once in a calendar quarter

Section 17(1A)(d) of EPF&MPAct, 1952

The Board of Trustees constituted shall :
(i) maintain detailed accounts
(ii) submit returns to the RPFC
(iii) invest the provident fund monies
(iv) transfer provident fund account of any employee
(v) perform such other duties as may be specified




   Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd      26
AUDIT OF PROVIDENT FUND TRUSTS

Submission of Returns

 EPF&MP            Act

 IT   Act




 Sushil Jeetpuria & Co    Pioneer eServe Pvt Ltd   27
AUDIT OF PROVIDENT FUND TRUSTS
Health of Securities
State wise exposure

                                         90
                                                                                                    82.93
                                         80
                                         70
                                         60
                        Rupees in Lacs


                                         50
                                         40
                                         30
                                         20                                 20.51
                                         10
                                                     12.30
                                          0




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                                                                             States   An


Sushil Jeetpuria & Co                                     Pioneer eServe Pvt Ltd                            28
PSU exposure

                        160

                        140

                        120

                        100
       Rupees in Lacs




                         80

                         60

                         40

                         20

                          0




                                                                             HD
                              BM




                                                             IC
                                                IF
                                   AB




                                                                        SS
                                                  Public Sector Units

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                         Sector wise exposure




                 300
                 250
Rupees in Lacs




                 200
                 150      271.50
                 100                                          61.37
                                             87.86                            10.25
                  50
                   0                                                                  Rupees in Lacs

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                                            er




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                           e




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                                                                              in
                         nc




                                           w




                                                                            us
                                         Po
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                                                                          Ho
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                                                        r
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                                                     Sector




                 Sushil Jeetpuria & Co           Pioneer eServe Pvt Ltd                     30
Redemption of Investments at maturity

                   250
                                              213.41



                   200

                         140.00

                   150
  Rupees in Lacs




                                                                                                         105.28


                                                                                81.44
                   100
                                                                                              65.40

                                                                                                                     45.14

                    50                                      22.06
                                   20.56
                                                                                                                                 0.87

                     0
                                    2 YEARS




                                               3 YEARS




                                                             7 YEARS




                                                                                8 YEARS




                                                                                              10 YEARS




                                                                                                          11 YEARS




                                                                                                                      15 YEARS




                                                                                                                                 24 YEARS
                          1 YEAR




                                                                       Period of redemption


Sushil Jeetpuria & Co                                Pioneer eServe Pvt Ltd                                                      31
Rating Profile Analysis

                       300
                                                                                         263.18


                       250


                                                                                190.95
   Amount in Lac Rs.




                       200



                       150


                             87.86
                                                              83.80
                       100

                                     40.86
                        50                       20.51
                                                                       7.00

                         0
                              A      A-           A+         AAA      ASO     UNRATED    SOV
                                                            Rating


Sushil Jeetpuria & Co                        Pioneer eServe Pvt Ltd                            32
Recent Changes …..
                                       and Challenges

 Auditors  change in two years
 Investment Pattern opened up
 Rate of Interest
 Accounting Standards
 Valuation of Investments
 FBT – SAF



Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd          33
            AUDIT OF PROVIDENT FUND TRUSTS

           Anamolies :

           No authentic data available,
           however,

                        Rs 1,40,000 crore with RPFC
                        Rs 1,40,000 crore in private trusts




Sushil Jeetpuria & Co         Pioneer eServe Pvt Ltd          34
                        Thank you!




Sushil Jeetpuria & Co   Pioneer eServe Pvt Ltd   35

				
DOCUMENT INFO
Description: Company Provident Fund document sample