- The Employees’ Provident Scheme (1952) came into effect to ensure social security for workers in both the organized and unorganized sectors.
- The companies have to contribute to the Employees’ Provident Fund Organisation (EPFO) trust towards the EPF fund.
- But some companies can also manage their own private PF trust if they acquire the exemption from the government.
- Private PF trusts function according to the same rules as the EPF
- Efficient – Members need to pay only 0.18% rather than 1.1% for an administration charge.
- Higher returns: It can declare a higher interest rate than the EPF.
- Quality service: In terms of customer satisfaction EPFO service is slow and poor. It can provide better service for its members.
- Members get 80C Benefit upto Rs. 1.5 lakhs
- The interest on private PF trusts is exempt from tax (Subject to 5 years service period withdrawal condition)
Differences when compared to EPFO
- EPFO is a central govt. body where as the private trusts are authorized by EPFO
- EPFO functions under Ministry of Labour but these trusts function under EPFO
- Though the trusts are private, 8.67% of the Employer’s contribution of 12% is allocated to Employees’ Pension Scheme (EPS) which is managed by the EPFO
- The private trusts should maintain PF accounts, regularly remit pension contributions of the members to the EPFO, issue annual accounts slips & Submit a periodical report to the EPFO
- Application to the Government through the jurisdictional Regional PF Commissioner
- Creation of a board of trustees for the smooth functioning & Governance of the PF scheme
- Private PF trusts have to file monthly returns with the EPFO and they are rated by the EPFO based on 6 parameters
- Contributions received by these trusts is deemed to be a Capital receipt and income in the nature of interest & dividend is also exempt u/s 10(25)(iv)
- Trusts can invest the contributions either with any LIC Scheme or Investments approved under Rule 67(2) of Income Tax Rules 1962
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