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Monday, 11 August 2014

PF Department to inspect establishments who split wages and pay PF on less than < 50% of gross wages

The PF Department has decided to inspect establishments who split wages and pay PF on less than < 50% of gross wages. The text of the notification and a link to access the notification copy are given below

View Notification


Inspection of establishments splitting wages to reduce PF liability - regarding.

The contribution payable by the employer under Employees Provident Funds Scheme, 1952 Is calculated on basic wages, dearness allowance (including the cash value of any food concession) and retaining allowance (If any} payable to each employee to whom the scheme applies. The meaning of basic wages Is defined under Section 2(b) of Employees' Provident Funds & Miscellaneous Provisions Act, 1952. It Includes all emoluments which are earned by an employee while on duty but excludes the cash value of food concession, dearness allowance, HRA, overtime allowance, bonus, commission or any other similar allowance payable to the employee and any presents given by the employer to his employees. However, It has been observed that many employers spilt the total wages payable to their employees Into several allowances In such a way that the said allowances are covered under the category of exdusions provided under Section 2(b) of the Act as explained above thereby encouraging the subterfuge of splitting of wages to exclude the PF liability. Instances have come to the notice where total wages of employees are splltted by employer to the extent that PF liability is reduced upto 50% of total wages.

2. In order to understand the gravity of the Issue it has been decided to have all those establishments Inspected where the employers have deducted PF contribution on fifty percent (or even less) of total wages paid to their employees. So all Officers In-charge of field offices are directed to get such establishments Inspected where PF contribution has been deducted on fifty percent or less of total wages. The exercise must be completed by 31.08.2014 and report In the proforma given below should reach Head Office by 07.09.2014.

Tax on PF withdrawal if service not of five continuous years

The withdrawal of the accumulated balance from a recognized PF triggers tax liability only if the employee has not rendered continuous services for five years or more to the employer. While computing the continuous services of five years, the period of previous employment is also included, if the accumulated balance maintained with the old employer is transferred to the PF account with the new or current employer.
Since you had already rendered service with the employer company for five years and seven days, there should not be any tax implications on withdrawal of PF. However, you would be required to report the PF accumulations in the tax return form to be compliant from disclosure perspective.

If the total number of years of service with a company are less than five years, withdrawal of accumulated PF balance shall be taxed in the financial year of withdrawal.
The total of employer’s contribution plus interest thereon will be taxed as salary. Further, the amount of tax benefit claimed under section 80C on account of your own contribution to the recognized PF shall be taxed. Also, the interest on your own contribution shall be taxed as “income from other sources”.
The tax rate would depend upon your applicable income slab in each of the fiscals during which the PF contributions were made. Further, the surcharge (as applicable) and education cess, shall be applicable for each of the fiscals and payable in addition to the basic income tax. Relief under section 89 shall be available as applicable.
Further, withdrawal of the PF accumulations will be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Accordingly, it would be required to have a cooling period of two months.

Alternatively, you can transfer the accumulated PF balance to the PF account to be maintained with the new employer.

For more information, mail it to

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