PF ESI deduction rules
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PF ESI deduction rules

In this blog, we will discuss the PF ESI deduction rules and its contribution rates, dues dates and steps to follow when deducting ESI and PF.

Index:

PF and ESI deductions are two types of social welfare schemes. These are administered by the Government of India to provide the facilities of social-economic and medical benefits to the employees.

Brief on PF (Provident Fund)

The Provident Fund is a social welfare scheme for the benefits of the employees. The main focus is to provide the saving benefits and income after the retirement of the employees. Under the Employees Provident Fund and Miscellaneous Provision Act, 1952, both employer and employee contribute their share of the amount but the whole of the amount is deposited by the employer. The employee contribution is deducted from the employee salary by the employer. This contribution is split in three separate funds – (EPF) Employees Provident Fund, (EPS) Employees Pension Scheme & (EDIL) Employee Deposit Insurance Linked Scheme.  

Let us look at key points for provident funds.

  1. The contribution by the employee as well as the employer is maximum on the wages of Rs.15,000/- per month.
  2. This scheme is not applicable for the international employees/workers.
  3. The employee can contribute at a higher rate, but it is not compulsory for the employee to contribute at a higher rate. Similarly, an employer will contribute at a normal rate but is not bound to contribute at a higher rate or extra amount. 
  4. If employer and employee want to contribute at a higher wage (wages above 15,000/-) , then they need the joint request from the employer and employee under the para26(6) of the EPF Scheme.
  5. In all cases, the employer has to pay the administrative charges.

Contribution rates for employer and employee –

The contribution of the employer and employee has to be accounted on the basic salary which consists of all salary components excluding House Rent Allowance.

EPF

EPSTotal Contribution EPF Admin ChargesEDIL
Employee12% of basic salary012% of basic salary0

0

Employer

3.67% of basic salary of employee8.33% of basic salary of employee (upto max of Rs 1250/-)12% of basic salary of employee (upto max of Rs1800/-)0.50% of Total wages

(min of Rs 500)

0.5% of Total Wages (min of Rs 200)

For example – Monthly salary of the employees of Rs.15,000/- 

EPF

EPSTotal Contribution EPF Admin ChargesEDIL
Employee1,800/-015,000*12% = 1,800/-0

0

Employer

15,000*3.67% = 550/-15,000*8.33% = 1250/-15,000*12% = 1,800/-15000*0.5% = 75 / 500

15000*0.5% = 75 / 200

Due dates 

Due date of PF (Provident Fund) payment as well as return filing is the 15th of every month. The Employer must deposit and file their return before the date or on the date of 15th of each month. A deposit of total 12% of employees wages for EPF.

Brief on ESI (Employee State Insurance)

Employee State Insurance (ESI) is a social security scheme that provides all the medical benefits for self and their dependents, which is allowable from the day first of insurable employment. 

The Employee State Insurance scheme is regulated by Employees State Insurance Corporation, an autonomous body under the Central Government of India (GOI), and is governed by the Ministry of Labour and Employment, Government of India.

Under this ESI scheme every employee has to self-finance for healthcare insurance funds, with the contribution of both self (employee) and employer, who all are part of any organisation where 10 or more employees are working. 

Applicable for – 

  1. All classes of employees/workers of an organisation employing 10 or more employees.
  2. This scheme is applicable for those classes of establishment which all are involved in hazardous classes. 
  3. This scheme is also applicable for non-seasonal, non-power and power using factories and hotel, shops and other establishments employing 10 or more employees/workers.
  4. Under the Employment State Insurance Scheme voluntary membership can be taken, if the number of employees in the establishment is less than 10.

 

Eligible for –

ESI is eligible for those employees whose income is less than Rs 21,000 per month. If an employee receives an increment during the contribution period, then the employee will be eligible for ESI benefits till the end of that contribution period.

Contribution rates for employer and employee –

The ESI contribution rate is defined on the Gross Salary which includes all the salary components of the salary.

The ESI contribution is made by both the employer and employee. The contribution rates are – 

  1. Employer’s contribution – 3.75% on gross income
  2. Employee’s contribution – 0.75% on gross income

If the employees have daily income up to Rs. 176/-, then they will be  exempted to make the contribution. Employers must contribute the shares in respect of these employees.

And this is compulsory for employers to deduct the employee contribution from the income and pay both the employer and employee contribution at the specified rate within 15 days of the end of the month. 

Due dates

There are two contribution periods, each of six months duration and two accordingly benefit periods as follows:

Contribution Period

Benefit Period

1st April to 30th Sept

1st Jan of the following year to 30th June
1st of Oct to 31st March of the following year

1st June to 31st December

The due date for monthly contribution payment of ESI returns is on or before the date of 15th of the following month, to the month to which the salary relates. E.g.: If ESI is deducted from the salary of the month of September, then the remittance has to be done on or before the 15th of Oct.

Steps to follow when deducting PF ESI- 

The employer and employee, they both are the part of these two schemes, where they have to follow the procedure.

For every employee it important to register –  

Under the PF ESI scheme,  employers must register every new employee. Form 1 and Form 11 which is used for the registration of an employee. Form 1 can fill through the ESIC portal within the 15 days from the date of applicability. Form 11 can be filled through the EPFO portal  with the details of employees’.   

UAN allotment and mailing – 

Employers should provide the UAN number to employees through the mail. The 12 digit UAN number is allotted to each member through EPFO. The UAN number of an employee will be the same even after changing the job or switching the job, but the member ID will change, and the new ID will be linked to the UAN. Although, employees must activate their UAN with the help of online service. 

Mark exit of left employees – 

After changing the job of the employee, you have to update their ‘’date of exit’’ for claims and settlements. If an employee’s exit date is not updated or mentioned incorrectly, then employment will be marked continuous. And because of that, your employee has to pay tax on interest, which is earned during the intervening period

Transfer request –

An employee can request to transfer the PF details from the previous employee’s member ID to the current organisation. Which can be done online with the help of a UAN number. 

KYC verification – 

KYC Verification is one of the essential parts of the PF ESI. And it is important for withdrawal of EPF. KYC verification requires mandatory documents such as Aadhar details, PAN, Bank account details, EPF numbers and other KYC details. 

And before approving, the employer needs to verify all the details and then approve the EPF member of the company or give them access to withdraw the PF. Thus, all the responsibilities of the employer are to furnish the KYC details of the employee. 

Aadhar updation for existing employees – 

As an employer, you must ensure that existing employees have updated or rectified their all details of applications and Aadhar or not, if not, then inform them to rectify and link their Aadhar card with their Bank account, PAN and UAN. And the employee makes sure that all details are matching or not. Any mistakes could be a reason for rejection or delay of applications.

Create employee membership – 

It is important to create employee membership to enrol every employee under the PF scheme provided that the salary of the employees is more than 15,000. If an employee becomes a member of EPF, then they have to mandatorily enrol in the next employment too.

1 Month temporary card to be given – 

After the registration of an employee with ESIC, the employer will take the hard copy of the (TIC) Temporary Identity certificate. This temporary Identity certificate will be valid for one month. Before the expiration of the TIC period, the employer should link Aadhaar with the insurance number, then the TIC will automatically be generated into the (PIC) Permanent Identity Card. So, with the help of IP and PIC employees and dependants can avail benefits under the scheme.

The  insured person and their dependents can also link their Aadhar with the help of ESIC Portal.

This brings us to the end of our discussion on the PF ESI deduction rules. If you have any questions or comments, drop them in the comments section below. 

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2 Comments

  • PF deduction is the most essential factor for any employee at this expensive world as it is a life saviour after retirement period. This is very well explained in this article and thanks for sharing the awareness.

  • how will manage ABRY beneficiary in payroll,

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