Knowledge Centre



Frequently Asked Questions


?

About Provident Funds
? About Provident Funds - Exempt
? About Provident Funds - Unexempt
? About Provident Funds - Excluded
? About Superannuation / Pension
? About Superannuation - Defined Benefit (DB)
? About Superannuation - Defined Contribution (DC)

?

About Gratuity

 



?

  About Provident Funds

  ?    What is a Provident Fund ?
  ?    Who administers the Scheme / Fund ?
  ?    How many Trustees can a Trust have ?
  ?    What is the current statutory rate of Provident Fund contribution ?
  ?    Can an employer contribute more than the statutory rate of contribution ?
  ?    Can an employee contribute more than the stipulated rate voluntarily? 
        If yes,  what is the stipulation for the same?
  ?    Can the member change the rate of voluntary contribution ?
  ?    Where can PF trusts invest the funds in their account ?
  ?    What is the interest allowed on PF contributions ?
  ?    Can a Trust credit interest less than the statutory rate of interest stipulated 
        by the PF Authorities ?
  ?    Can an employee transfer his PF accumulations from another Trust / RPFC to  
        his/ her present Employer's Trust ?
  ?    Can an employee withdraw the contributions made towards the Employees' 
        Pension Scheme, 1995 ?
  ?    Can an employee get to know the balance standing to his credit in his 
       PF account ?
  ?    For the purpose of membership to PF, is previous service with 
       ex-employer counted ?
  ?    Can voluntary contribution alone be withdrawn ?
  ?    Is settlement from the Trust immediate in case of resignations ?
  ?    Is there any tax deduction at the time of settling the PF accumulations 
       from the Trust ?

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?

  About Provident Funds – Exempt

  ?   When can a Company opt to set up an Exempted Trust ?
  ?   What are the membership details of the Trust ?
  ?   Upon exemption, what are the payments made to the RPFC ? 
  ?   Can the EPS deduction (to be paid to the RPFC) be made from the 
       Employee's contribution ?
  ?   Is the employer's contribution deducted from the employee's wages ?
  ?   Can a member finance his LIC Policy through the Trust ?
  ?   How does one go about availing these Non-Refundable Withdrawals / Loans ?
  ?   What are the Refundable and Non-Refundable Loans that an employee can avail 
      as per the IT Rules ?
  ?   When can an employee withdraw or apply for settlement ?
  ?   Can withdrawals be made one year before retirement ?
  ?   What happens to settlements in case of the member's death ?

 



?

  About Provident Funds – Unexempt

  
  ?    When does a company comply as an Unexempt Establishment ?
  ?    How does the company apply for a Code Number ?
  ?    What are the payments made to the RPFC by an Unexempt Establishment ?

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?

  About Provident Funds – Excluded

  ?      What is an Excluded Employee’s Trust ?
  ?     
Who is an Excluded employee ?
  ?     
What are the conditions for membership to the Trust ?

  ?         What are the contributions to the Trust ?
  ?         When can an employee withdraw or apply for settlement ?
  ?         What happens to settlements in case of the member’s death ?
  ?         What are the regulations pertaining to Excluded Trusts ?

 



?

  About Superannuation / Pension

  ?    What is Superannuation (SA) Benefit ?
  ?    What is the objective of a SA scheme ?
  ?    Is it mandatory for an employer to pay pension to his employees ?
  ?    What are the different types of pension schemes ? 
  ?    What is a DC Scheme ?
  ?    What is a DB scheme ?
  ?    What are the different ways in which a company can offer superannuation 
        benefits ?
  ?    What is meant by accumulation period ?
  ?    What is meant by decumulation / pay-off period ?
  ?    Do annuities depend upon the survival /death of a person ?
  ?    Can an option be given to employees to join SA or not ?
  ?    What does “eligible member” mean ?
  ?    Once having formed a trust, can the company stop paying contributions and 
        instead make the payment to the employees, subject to Tax ? 
  ?    Can employees of more than one company be members of a single SA Trust ?
  ?    Is it possible to get benefits as lump sum ? 
  ?    What is commuted value ?
  ?    How is commutation taxed ?
  ?    Is it necessary to form a trust fund ?
  ?    What is meant by an Irrevocable trust fund ?
  ?    How is the Past Service liability prior to the formation of the trust, funded ?
  ?    Is it compulsory that the Past service liability should funded ?
  ?    What is initial contribution ?
  ?    What is the tax treatment of initial contribution ?
  ?    What is ordinary annual contribution?
  ?    What is final contribution ?
  ?    Is it necessary for an employer to contribute a uniform percentage of the salary
       for all the employees ?
  ?    Is there a maximum/ceiling imposed on the contribution by statute ?
  ?    Are transfers - in and out, allowed ?
  ?    What does equitable interest transfer mean and how is it arrived at ?
  ?    What is the rate at which interest is credited to the Superannuation 
        contributions ?
  ?    Are individual accounts maintained by the trustees ?
  ?    Is it possible for employees also to contribute to Superannuation and if so what 
        is the tax position ?
  ?    Can Directors of a Company be admitted as members of Superannuation Fund ?
  ?    What is meant by Scheme of insurance with LIC ?
  ?    Does LIC offer any additional benefits if the trustees enter into a scheme of 
       insurance with them ?
  ?    What are the different schemes of Annuity ?
  ?    What types of amendments to the rules are possible ?
  ?    What is the process of amending the rules of the fund ?
  ?    Is approval of the Income Tax Department necessary ?
  ?    In case of a self – administered trust, where should the funds of a 
       superannuation trusts be invested ?

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?

  About Superannuation - Defined Benefit (DB)

  ?    What is a Defined Benefit ?
  ?    How does one ascertain the benefit accruing under the Defined Benefits Plan ?
  ?    What is the benefit receivable on Retirement on or after the Normal Retirement 
        Date in a DB scheme ?
  ?    What are the Benefits on Death or Permanent Total Disability while in service ? 
  ?    What are the Benefits on withdrawal from service ?
  ?    How will the pension be payable ?
  ?    In what form is the benefit payable ?
  ?    What are the necessary conditions to be fulfilled to avail this benefit ?
  ?    Does the Trust allow Transfer-Ins ?

 



?

  About Superannuation - Defined Contribution (DC)


  ?    Is Actuarial Valuation necessary in case of a Defined Contribution Plan ?
  ?    What are the parameters on which the ultimate benefit is dependent on, 
        in DC Scheme ?
  ?    What are the advantages of a defined contribution scheme ?
  ?    Under what conditions can you become a member of the Trust ?
  ?    When will the membership cease ?
  ?    What are the contributions payable into the account ?
  ?    What are Ordinary Annual Contributions ?
  ?    What are Final Contributions ?
  ?    What are the Pension / Annuity Options offered by LIC in case of Cessation of 
       employment due to death of the member ?
  ?    What comprise Accumulations to the Credit of members account ?
  ?    When can a member claim the Accumulations credited to his account ?
  ?    Does the Trust allow Transfer-Ins ?

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?

  About Gratuity


  ?   What is a Gratuity Fund Plan ?
  ?   What is the objective of a Gratuity Trust Fund ?
  ?   Is Gratuity a mandatory benefit ? 
  ?   What are the different forms of compliance through which a company can 
       offer gratuity ?
  ?   Which law governs the payment of Gratuity ?
  ?   What are the benefits payable under this Act ?
  ?   Is it necessary to form a trust fund ?
  ?   Why should a fund be created ?
  ?   Should the benefits payable be exactly equal to the payment of 
      Gratuity Act 1972 ?
  ?   How is the Past Service liability prior to the formation of the trust, funded ?
  ?   What is initial contribution ?
  ?   What is the tax treatment of initial contribution ?
  ?   What is ordinary annual contribution ?
  ?   What is the tax treatment of annual contribution ?
  ?   Can two employers come together and operate from a single trust ?
  ?   What is meant by an irrevocable trust fund ?
  ?   What are the advantages of forming a trust ?
  ?   Are transfers - in and out allowed ?
  ?   Are individual accounts maintained by the trustees ?
  ?   Who can be the nominees ?
  ?   What does “Scheme of Insurance” with LIC mean ?
  ?   What does Notional Death Benefit mean ?
  ?   What are the possible types of amendments to the rules ?
  ?   For any amendment, what are the types of resolutions that are necessary ?
  ?   Is approval of IT necessary ?
  ?   What does equitable interest transfer mean and how is the value arrived at ?
  ?   How does one go about Nomination formalities?
  ?   What are the contributions payable into the account ?
  ?   In case of a self – administered trust, where should the funds of a 
      superannuation trusts be invested ?


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    About Provident Funds


What is a Provident Fund ?

It is a mandatory, tax-qualified, defined contribution, retiral benefit plan wherein equal contribution at the rate of 12% is made by the employer and the employee and the same is payable in lump sum on retirement.

Who administers the Scheme / Fund ?
In case of an unexempt establishment the Regional Provident Fund Commissioner (RPFC) administers and manages the fund. In case of Exempt and Excluded Trusts the Board of Trustees administer the Fund.

How many Trustees can a Trust have ?
As per para 79(C) of the EPF Scheme 1952, an Exempted Trust shall consist of not less than two and not more than six representatives each, from the employer and employees.

What is the current statutory rate of Provident Fund contribution ?
The current rate of PF contribution by a member is 12% of Salary / Wages (Basic + Dearness Allowance) with matching contribution from employer.

Can an employer contribute more than the statutory rate of contribution ?
Yes, an employer can contribute more than statutory rate. However, the Employer will not get any tax benefits for the same.

Can an employee contribute more than the stipulated rate voluntarily? If yes, what is the stipulation for the same ?
An employee can contribute voluntarily over and above the stipulated rate of contribution. However, the contribution to Voluntary Provident Fund (VPF) should be a certain % of wages and not a fixed amount. Such voluntary contribution will not be matched by the employer's contribution.

Can the member change the rate of voluntary contribution ?
The rate of voluntary contribution can be changed only from the beginning of a financial year. Change in between the financial year is not possible. Change can either mean increase/decrease in the rate of contribution.

Where can PF trusts invest the funds in their account ?
All monies standing to the credit of the trust bank account, to the extent of funds not required for settlements /transfers / withdrawals etc pertaining to the members shall be invested by the Trustees in the manner prescribed by the Government of India vide Rules 101 & 67 of Income Tax Rules, 1962 from time to time. The pattern is as below: 

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Asset / Instrument 

 Allocation 

Central Government securities as defined in Sec. 2 of the Public Debt Act, 1944 (18 of 1944); and /or units of such mutual funds which have been set up as dedicated funds for investment in Government securities and which are regulated by the Securities and Exchange Board of India;

 25% 

(a) Government securities as defined by any State Government; and/or units of such mutual funds which have been set up as dedicated funds for investment in Government securities and which are regulated by the Securities and Exchange Board of India; and/or

(b) Any other negotiable securities the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central 
Government or any State Government except those covered under (iii) (a) below

 15% 

(a) Bonds/Securities of 'Public Financial Institutions' as specified under Section 4(1) of the Companies Act; "public sector companies" as defined in Section 2(36-A) of the Income Tax Act, 1961 including public sector banks; 
and/or

(b) Term Deposit Receipts upto three years issued by public sector banks Provided that the instruments covered under (iii) (a) above have an investment grade rating from at least two credit rating agencies.

(c) Collateral Borrowing 
and Lending Obligation (CBLO) issued by Clearing Corporation of India Limited and 
approved by the Reserve Bank of India.

 25% 

To be invested in any of the above three categories as decided by their Trustees. 

 30% 

5   

Shares of companies that have an investment grade debt rating from at least two credit rating agencies or in (iii) above

 Upto 5%

   The Trustees, subject to their assessment of the risk-return prospects, may invest upto 1/3rd of (iv) above, in private sector debt instruments which have an investment grade rating from at least two credit rating agencies and/or in equity-linked schemes of mutual funds regulated by the Securities and Exchange Board of India.  

  


What is the interest allowed on PF contributions ?

The current rate of interest allowed on PF contributions is 8.5% p.a.

Can a Trust credit interest less than the statutory rate of interest stipulated by the PF Authorities ?
An Exempted Trust cannot credit interest less than the statutory rate of interest stipulated by the PF authorities 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 can declare interest based on the earnings of the Trust.

Can an employee transfer his PF accumulations from another Trust / RPFC to present his/her Employer's Trust ?
An employee can transfer his PF accumulations from another Trust / RPFC to his/her Trust by submitting Form 13.

Can an employee withdraw the contributions made towards Employees' Pension Scheme, 1995 ?
An employee can withdraw the contributions made towards Employees' Pension Scheme, 1995, on leaving service before becoming eligible for members pension, by submitting Form 10-C, only if he has NOT completed 10 years of service.

Can an employee get to know the balance standing to his credit in his PF account ?
Yes. A statement will be issued every year from the Trust showing the contributions and interest credited along with other details like transfers received, loans availed etc.

For the purpose of membership to PF, is previous service with ex-employer counted ?
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.

Can voluntary contribution alone be withdrawn ?
Voluntary contributions alone cannot be withdrawn.

Is settlement from the Trust immediate in case of resignations ?
Settlement can be done only after a waiting period of two months from the date of resignation but in cases of members leaving abroad, settlements can be done immediately and settlements are immediate in case of female members who resign from the services for the purpose of getting married.

Is there any tax deduction at the time of settling the PF accumulations from the Trust ?
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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    About Provident Funds – Exempt



When can a company opt to set up an Exempted Trust ?

After being covered under the provisions of the PF Act and if it is a profit making Company with 200 employees, it may pass a Board Resolution and apply to the IT Department for recognition of a Trust and thereafter file for exemption with the RPFC. On receipt of the approval from RPFC the Trust can comply as “Exempt”.

What are the membership details of the Trust ?
Every member, employed as regular staff (other than an excluded employee), will become a member of the fund from the date of joining the establishment and will continue to remain a member till he withdraws his PF accumulations from the fund. An excluded employee shall, on ceasing to be such an employee, be entitled to and required to become a member of the fund from the date he ceases to be such an employee.

Upon exemption, what are the payments made to the RPFC ? 

P  Out of 12% of Employer's contribution, 8.33% (on wages capped at Rs.6500/-) 
     transferred to EPS A/c
P  EDLI @ 0.5% (on wages capped at Rs.6500/-) 
P  EDLI Administration charges @ 0.01% of Basic and Dearness Allowance 
     (on wages capped at 6500/-)
P   PF Inspection charges @ 0.18% of Basic and D.A. 

Can the EPS deduction (to be paid to the RPFC) be made from the Employee's contribution ?

No, the EPS deduction of 8.33% can be made only from the employer's contribution of 12% of Basic and D.A. and is capped at Rs.6500/-.

Is the employer's contribution deducted from the employee's wages?
No, the employer's contribution cannot be deducted from the employee's wages and is shown as cost in the company's books.

Can a member finance his LIC Policy through the Trust?
A member may, by an application made to the Board, finance the annual premium due on his own Life Insurance Policy through his Provident Fund account, subject to an adequate balance together with interest thereon available to the credit in his members contribution account. And where the payment is to be made on the first premium, the balance should be sufficient to pay the premium for two years. However, this can be done only if the member assigns the policy to the Trust.
 

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How does one go about availing these Non-Refundable Advances / Loans?
An Application as per the prescribed format needs to be made to the Board and the same shall be sanctioned as per the Trust Rules.

What are the Refundable and Non-Refundable loans that an employee can avail as per the IT Rules?

Non-Refundable Loans that an employee can avail : 

1. Purpose:

    Purchase of site for Construction of House.

 
    Quantum: 

  P      
24 months member's basic & DA.
  P      
Credit in Member's Contribution Account with interest thereon.
     P       Actual Acquisition Cost of the Site; whichever is least. 

    Eligibility:  

  P       Member should have completed 5 years membership in the Fund.
P      
Credit in Member's Contribution Account with interest thereon shall not be   
     less than Rs.1000.

P      
The dwelling site or house/flat is free from encumbrances. 
Site should be purchased in the name of the Member or spouse or jointly in 
     the name of the member and the spouse only.


Documentation:
  

  P       Original sale deed from the seller.
P       Agreement for sale.
P      
Latest non-encumbrance certificate.
P      
Layout approval. 

      Other Details:
      Where the purchase is through an agency, withdrawals in one or two 
     installments  payable directly to the agency.

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2.  Purpose:
     Purchase of a ready built house/flat or construction of a house/flat.

    Quantum:
 

     P       36 months member's pay (Basic + DA); or
P       Credit in Member's Contribution Account with interest thereon; 
P      
Cost of acquisition of property or cost of construction, whichever is least 

     Eligibility: 

  P       Member should have completed 5 years membership of the Fund.
P      
Credit in Member's Contribution Account with interest thereon shall not be 
     less than Rs.1000.
P       The dwelling site or house/flat is free from encumbrances.
P       Property should be in the name of the member or spouse or jointly in the 
     name of the member and the spouse.

      Documentation:

  P      
Agreement for sale.
     P       Latest non-encumbrance certificate.
     P       Layout approval.
    
P       Estimated cost certified by an Arc/Civil Engineer.  

      Conditions: 

  P       In case of construction of a dwelling house, the construction shall 
     commence  within 6 months of first withdrawal and shall be completed within 
     12 months of   final installment.

P      
In case of purchase of a dwelling house/flat or acquisition of a dwelling  site,  
     the same shall be completed within 6 months of withdrawal of the amount.
 

       Other Details:
      No of installments sanctioned as per the Trustees- If purchase is made on an 
      ownership basis from a promoter, then withdrawals are paid in one or two 
      installments to the member as per the Promoter's requirement.
 

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3.   Purpose:
     
Additions/Alterations/Improvements to the dwelling house owned by the member, 
     spouse or jointly owned by both.

     Quantum:
 

  P       12 months basic wage + DA,
    
P       Members' own share of contribution with Interest thereon 
    
P       Cost of alteration, whichever is less. 

Eligibility:


Additional withdrawal admissible only after a period of five years from date of completion of dwelling house.

Purpose:
Repayment of loan by any member taken from a State Government, Co-operative society, NHB or Municipal Corporation or any other Financial Institution.

Quantum:
 

P       36 months' pay 
P      
Credit in members' contribution Account with Interest thereon  
P      
Outstanding principal and Interest; whichever is least. 

Eligibility: 

P       10 years PF membership. 
P      
Members balance + interest thereon is equal to or in excess of Rs. 1000/- 

Documentation:  

Latest statement of accounts by the concerned FI confirming the outstanding Loan Balance (Loan + Interest). 

Other Details:
The payment shall be made directly to the agency only, on receipt of proper authorization.

Purpose:
Grant of advance when the establishment is closed for more than 15 days or when the member does not receive wages for a continuous period of two months.

Quantum:
Advance to be paid out of the amount standing to the credit of the employees' portion of the contribution including interest.

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4.  Purpose:
Grant of advance when the establishment is closed for more than 6 months or when the member is still unemployed and unlikely to receive compensation.

Quantum:
100% of Company's Contribution in one or more recoverable loans.

Other Details: 

Interest Free Loan. 

Repayable in maximum of 36 installments payable from the first salary paid after restart of the Company and as per Trustees' discretion.  

Provision If the Company remains closed for more than 5 yrs, refundable loans can be converted to non-refundable loans on application to the Trustees. 

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5.  Purpose:
The cost of legal proceedings instituted by the employee against the Company for discharge or dismissal or retrenchment.

Quantum:
Shall not exceed 50% of his own contribution standing to his credit in the fund paid in one or more non-recoverable Loan.
 

6. Purpose:
Advance from the fund for marriages / post-matriculation education of children. 

Quantum:
Non-Refubdable loan not exceeding 50% of his own share of Contribution, with interest thereon. 

       Conditions:  

       P       Member has 7 years' of membership in the fund
  P      
Amount of his own share of contribution is more than Rs 1000/-
  P      
Not more than 3 advances shall be admissible. 

7. Purpose:
Advance for illness of the member or his family in case of the following:
 

  P       Hospitalization lasting for one month or more or 
P      
Major surgical operation in a hospital or 
P      
Sufferings from TB, Leprosy, Paralysis, Cancer, Mental Derangement or Heart 
     ailment and having been granted leave by employer for the said illness.
 

Quantum:
Shall not exceed 6 months member's pay or credit balance in his own share of contribution account, whichever is lower.

Conditions:
 

  P       Benefits under Employee State Insurance Scheme not available or ceased to 
     be available.

P      
Medical Certificate from a Doctor or specialist. 

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8. Purpose:
Grant of advance under abnormal circumstances- destruction of member's property due to floods, cyclone, earthquakes or other convulsion of nature or riots.

Quantum:
Rs. 5000/- or 50% of member’s contribution including interest standing to his credit on the account, whichever is less.

Documentation & Conditions:
 

  P       Declaration that the calamity has affected the general public.
P      
Certificate of damages caused by such calamity from appropriate authority.
P      
And the application for the advance is made within a period of 4 months from 
     the date of declaration.

 

9. Purpose:
Grant of Advance when member is affected by a cut in the supply of Electricity.

Quantum:
The amount of wages or Rs.300 or amt standing to the credit of employee's own contribution account and interest thereon, whichever is less.

Eligibility:
Total wages for any one month commencing from the month of January 1973 is ¾th or less than ¾ th of wages for a month.

Documentation & Conditions:
Certificate from the State Government that electricity supply cut was in an area in which the establishment was located and the fall in member's pay was due to such cuts.

Other Details:
Only one advance is admissible under this rule.
 

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10. Purpose:
Grant of advance to members who are physically handicapped.

Quantum:
Six months (Basic+DA) or the members own contribution + interest or cost of equipment, whichever is least.

Documentation & Conditions:
Certificate from medical practitioner. No second advance permitted for a period of 3 years from date of payment of such advance.


What are the Recoverable Advances that an employee can avail as per the IT Rules?
 

Refundable Loans that an employee can avail :

1. Purpose:
Illness of a member or member of his family or for passage of a member.

Quantum:
Shall not exceed
    P       3 months member's pay; or
    P       50% of his own contribution standing to his credit in the fund.

Eligibility: 
   P       Member is employed with the established for at least one year; And
   P       has a minimum of Rs.1000 in his own share of the contribution account.

Documentation:
   P       Medical Certificate -from a medical officer authorized by the company ; or
   P       From the Employees State Insurance (ESI) Doctor where the ESI Scheme exists.

Conditions:
Member shall indicate the date of event for which the advance is applied for and furnish in one-month, proof or certificate showing the rightful usage of such advance.

Other Details:
Interest at the rate of one percent above that payable for the time being on the member's balance shall be chargeable on such loans
Repayment in 24 installments form the wages of the month succeeding the month in which the advance is granted; or in case of a member on leave without pay, form the month succeeding the month in which he returns.

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2. Purpose:
Expenses pertaining to Marriages, Funerals or Funeral ceremonies that by religion the incumbent is bound to perform.

Quantum:
     P       Shall not exceed 6 months member's pay.
    P       50% of his own contribution standing to his credit in the fund.

Eligibility:
    P       Member is employed with the established for at least one year; And
   P       has a minimum of Rs.1000 in his own share of the contribution account.

Conditions:
Member shall indicate the date of event for which the advance is applied for and furnish in one-month proof or certificate showing the rightful usage of such advance.

Other Details:
Interest at the rate of one percent above that payable for the time being on the member's balance shall be chargeable on such loans.

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3. Purpose:
The cost of legal proceedings instituted by the employee for vindicating his position in regard to allegations made against him in respect of any act done while discharging his official duties.

Quantum: 
    P       Shall not exceed 3 months member's pay; or
    P       50% of his own contribution standing to his credit in the fund.

Eligibility:
     P       Member is employed with the established for at least one year.
    P       And, has a minimum of Rs.1000 in his own share of the contribution account. 

Conditions:
Employee should not institute proceedings in any court of law either in respect of 
    P       Any matter unconnected with his official duties; or
     P       Against the employer in respect of any conditions of service.
    P       Or penalty imposed on him. 

Other Details:
Interest
at the rate of one percent above that payable for the time being on the member's balance shall be chargeable on such loans
Repayment in 24 installments form the wages of the month succeeding the month in which the advance is granted; or in case of a member on leave without pay, form the month succeeding the month in which he returns.

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4. Purpose:
Second and subsequent loan.

Quantum:
50% of his own contribution standing to his credit in the fund.

Eligibility:

      P       Member is employed with the established for at least one year.
     P       And, has a minimum of Rs.1000 in his own share of the contribution account.
     P       Also, - Advance earlier drawn is fully repaid (Non-refundable loans taken, if any, disregarded and not accounted for this purpose)

Other Details:
Interest at the rate of one percent above that payable for the time being on the member's balance shall be chargeable on such loans.

Repayment in 24 installments form the wages of the month succeeding the month in which the advance is granted; or in case of a member on leave without pay, from the month succeeding the month in which he returns.

When can an employee withdraw or apply for settlement ? 

P       On retirement from services after attaining the age of Superannuation or if he 
     attains the age of Superannuation before the payment is authorized.
P       On retirement on account of permanent and total incapacity for work due to 
     bodily or mental infirmity duly certified by a Medical Practitioner.
P       On migration from India for permanent settlement abroad or on taking 
     employment abroad.
P       On termination of employment under a voluntary scheme or retirement by mutual 
     consent of the member and the Employer.
P       On termination of employment in case of mass or individual retrenchment.  


Can withdrawals be made one year before retirement ?

Yes, On application to the trustees, 90% of the accumulations can be withdrawn at any time after attainment of the age of 54 years by the member or within one year before his actual retirement on Superannuation; whichever is later.

What happens to settlements in case of the member's death ?  

Payment of accumulations standing to the credit of the member to be made in accordance to the nomination form submitted by the member. In the absence of any nomination relating to a part or whole of the accumulations of the member, such part is to be divided among the members of his family in equal shares to: 

    P       Sons who have not attained majority.
    P       Sons of a deceased son who have attained not majority.
    P       Married daughters, whose husbands are not alive
    P       Married daughters of a deceased son, whose husbands are not alive.

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>

    About Provident Funds – Unexempt


When does a Company comply as an Unexempt Establishment ?
Once the Company crosses the 20 employees' mark, it is covered under the Act and has to apply to the RPFC for the Allotment of a Code Number and should remit the PF contributions from the date of coverage.

How does the Company apply for a Code Number ?
The Company has to apply for Coverage and code number in the prescribed proforma provided by the PF Department along with the ownership return (Form 5A).

What are the payments made to the RPFC by an Unexempt Establishment

P      
Employee contribution of 12% of Basic, D.A, Leave Encashment and cash value 
     of food concession, if any,
P       Employer contribution of 12% of Basic, D.A, Leave Encashment and cash value 
     of food concession if any, out of which
P       8.33% with a cap of Rs.6500/- to be paid towards EPS a/c.
P       EDLI @ 0.5% (on capped wages at Rs.6500/-) 
P       EDLI Administration charges @ 0.01% of Basic and D.A.
P       PF Administration charges @ 1.1% of Basic and D.A.
P       All Voluntary Contributions.

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    About Provident Funds – Excluded


What is an Excluded Employees' Trust ?

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 Authorities are the Income Tax department.

Who is an Excluded employee ?
An "Excluded Employee" shall mean 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 and 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 as above is more than Rs 6500/- per month.
ii Does not have any current PF Balance. 

What are the conditions for membership to the Trust ?

He should be an Excluded Employee within the meaning of the Act.

What are the contributions to the Trust ?
Employee and Employer contributes 12% of his Basic + DA. An employee has the option to voluntarily contribute a higher percentage towards PF without any matching contributions from the employer. There are no contributions towards EDLI or EPS. Employer and Employee contribution can be technically lower than the statutory rate as well.

When can an employee withdraw or apply for settlement ?

P       On retirement from services after attaining the age of Superannuation or if he attains the age of Superannuation before the payment is authorized.
P       On retirement on account of permanent and total incapacity for work due to bodily or mental infirmity duly certified by a Medical Practitioner.
P       On migration from India for permanent settlement abroad or on taking employment abroad.
P       On termination of employment under a voluntary scheme or retirement by mutual consent of the member and the Employer.
P       On termination of employment in case of mass or individual retrenchment. 

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What happens to settlements in case of the member’s death ?
 

Payment of accumulations standing to the credit of the member to be made in accordance to the nomination form submitted by the member. 

In the absence of any nomination relating to a part or whole of the accumulations of the member, such part is to be divided among the members of his family in equal shares to:
P       Sons who have not attained majority.
P       Sons of a deceased son who have attained not majority.
P       Married daughters, whose husbands are not alive
P       Married daughters of a deceased son, whose husbands are not alive.


What are the regulations pertaining to Excluded Trusts ?

P       The regulatory authority is the Income Tax Department and policies are framed 
     based on the PF Act.
P       This Trust includes all employees with Salary (Basic and DA) exceeding Rs. 6500 
     at the time of initial appointment and who do not have any prior PF balance 
     (either with the Govt. or any other Trust) and included in the purview are 
     Apprentices (as per the Apprenticeship Act)
P       The employer and employee make the matching contributions at the rate of 12% 
     into the Trust. There are no contributions towards EPS or EDLI.



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    About Superannuation / Pension


What is Superannuation (SA) Benefit ?
It is a voluntary pension plan catering to the retirement needs of the employee to ensure that pension is received by the member / employee after his retirement / leaving service.

What is the objective of an SA scheme ?
To pay pension to employees on their retirement or on their leaving service

Is it mandatory for an employer to pay pension to his employees ?
No, It is not mandatory for an employer to pay pension to his employees.

What are the types of pension / superannuation schemes ?
Broadly there are two types of schemes, namely Defined Contribution (DC) and Defined Benefit (DB).

P       A Superannuation Defined Benefit scheme is one where the benefit is defined to the member (which normally is a formula linked to salary, years of service, etc;)
P       A Superannuation Defined Contribution scheme is one where the Contribution is defined and is tax exempt up to 15% of basic salary; and it is a voluntary scheme.

What is a DC scheme ?
The contributions are defined/fixed and the benefits are variable and depend upon the accumulated value of the contributions on the date a member leaves the fund.

What is a DB scheme ?
The benefits are fixed/defined and are a function of the last drawn salary .The contributions vary and are decided by an actuarial valuation. 

What are the different ways in which a company can offer superannuation benefits ? 

Set up an Income Tax recognized trust that can be administered internally.
Have a scheme with LIC, where the company mandates LIC to manage and administer the superannuation benefit.
Opt for a scheme with a private insurance company, which will be responsible for managing the superannuation scheme.

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What is meant by accumulation period ?
It is the period during which the contributions are made and is generally the working period of an employee.

What is meant by decumulation / pay-off period ?
It is the period during which the benefits are payable, which starts either on the date the member leaves the fund or the Normal Retirement Date.

Do annuities depend upon the survival / death of a person ?
YES and can be one of the conditions of payment.

Can an option be given to employees to join SA or not ?
No option is available and as long as an employee is an eligible member he has to join the scheme.

What does “eligible member” mean ?
The rules define the employees who are eligible to join the scheme. Eligibility is defined either by designation, grade and or service.

Once having formed a trust, can the company stop paying contributions and instead make the payment to the employees, subject to Tax ?
NO. Once the trust fund is set up and approval is obtained from IT, the contributions can stop only when the Trust is wound up.

Can employees of more than one Company be members of a single SA Trust ?
No, this is not possible even for subsidiary companies or sister concerns. Every company having a separate legal identity should have a separate trust fund.

Is it possible to get benefits as lump sum ?
As per the provisions of the Trust Rules, the benefits of Superannuation should only be in the form of Annuities purchased from LIC. However, the members will have the option to commute 1/3 or 
1/2 of the total accumulation and the balance can be in the form of annuities. The commuted portion of accumulation is subject tax.

What is commuted value ?
The 1/3 or 1/2 portion of the total superannuation accumulation, which the member opts to receive in cash, (subject to tax) is referred as Commuted Value.

Can a member claim the entire commuted value free of tax ?
If the member leaves the scheme either on Normal Retirement Date (NRD) or 10yrs prior to NRD then commutation is not taxable. Otherwise it is taxable.

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Is it necessary to form a trust fund ?
If a Company desires to avail tax benefits on the contributions made to the SA fund, then the Company needs to form an irrevocable trust fund.  

What is meant by irrevocable trust fund ?
The identity of the trust fund is separate from that of a Company and the Company has no right over the money available in the fund.

How is the Past Service liability prior to the formation of the trust, funded ?
The Past service liability is funded in installments or in one lump sum at the time of formation of the trust based on an Actuarial valuation for DB Schemes.

Is it compulsory that the Past service liability be funded ?
Under a DC scheme it is optional but in case of a DB scheme it is compulsory and is determined by an actuarial valuation.

What is initial contribution ?
It is the contribution for funding the past service liability on the date of formation of the trust.

What is the tax treatment for initial contribution ?
80% of the initial contribution paid in lump sum or in installments will be allowed as business expenses spread over a period of 5 Assessment Years starting from the year of formation of the trust.

What is ordinary annual contribution ?
The contributions to the fund made on a yearly basis.

What is final contribution ?
Under the DC scheme part of the contribution, which pertains to the period between the dates of the last annual contribution and the member leaving the fund.

Is it necessary for an employer to contribute a uniform percentage of the contribution for all the employees ?
Not necessarily, the percentage can vary between categories but cannot be differentiated between members of a category.

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Is there a maximum/ceiling imposed on the contribution by statute ?
As per the current IT rules the total contributions towards PF and SA cannot exceed 27%of the salary.

Are transfers in and out allowed ?
Yes, provided the transferee and transferor Trusts are IT approved ones.

What does equitable interest transfer mean and how is it arrived at ?
Equitable Interest transfer refers to transfer of Superannuation accumulations to another similar fund. In case of Defined Contribution (DC), the transferable amount is equal to the accumulation till the date of transfer while in the Defined Benefit Scheme the transferable amount is determined by way of actuarial valuation. Generally, transfers are effected only if both the Trusts are DC Trusts. 

What is the rate at which interest is credited to the Superannuation contributions ?
The rate depends upon the earnings and is decided by the trustees on an year to year basis.

Are individual accounts maintained by the trustees ?
In case of DC, individual accounts are maintained but the DB is a pooled fund based on the actuarial valuation.

Is it possible for employees also to contribute to Superannuation and if so, what are the tax benefits ?
A member cannot contribute to a Defined Benefit Scheme. If the scheme is Defined Contribution, the member has the option to contribute to the fund and will be eligible for rebate under Section 88 of the Income Tax Act.

Can Directors of a Company be admitted as member of Superannuation Fund ?
Yes, so long as the Director is a full time working director who does not own more than 5% of the voting rights.

What does Scheme of Insurance with LIC mean ?
The administration of the Superannuation Fund by the LIC authorities is known as Scheme of Insurance.

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Does LIC offer any additional benefits if the trustees enter into a scheme of insurance with them ?
LIC offers an optional Group Insurance Scheme to the SA members to compensate for the loss of contribution in case of death of a member while in service.

What are the different schemes of Annuity ?
The different types of annuities are as follows:
P       Payable for life.
P       Payable for life guaranteed for 5 yrs.
P       Payable for life guaranteed for 10 yrs.
P       Payable for life guaranteed for 15 yrs. 
P       Payable for life with return of capital.
P       Payable jointly on the life of husband and wife etc.
 
What types of amendments to the rules are possible ?
Any rule, which does not adversely affect the interest of the member, can be amended. 

What is the process of amending the rules of the fund ?
Passing a resolution to that effect by the Board of Trustees, preparing a Deed of variation and getting an approval for the same from the Income Tax Authorities, can make the amendments to the existing rules. 

Is approval of IT necessary ?
Yes. Both at the time of formation of the Trust and whenever the rules are amended. 

In case of a self – administered trust, where should the funds of a superannuation trust be invested?

All monies standing to the credit of the trust bank account, to the extent of funds not required for settlements /transfers / withdrawals etc pertaining to the members shall be invested by the Trustees in the manner prescribed by the Government of India vide Rules 101 & 67 of Income Tax Rules, 1962 from time to time. The pattern is as below: 

  

Asset / Instrument 

 Allocation 

Central Government securities as defined in Sec. 2 of the Public Debt Act, 1944 (18 of 1944); and /or units of such mutual funds which have been set up as dedicated funds for investment in Government securities and which are regulated by the Securities and Exchange Board of India;

 25% 

(a) Government securities as defined by any State Government; and/or units of such mutual funds which have been set up as dedicated funds for investment in Government securities and which are regulated by the Securities and Exchange Board of India; and/or

(b) Any other negotiable securities the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central 
Government or any State Government except those covered under (iii) (a) below

 15% 

(a) Bonds/Securities of 'Public Financial Institutions' as specified under Section 4(1) of the Companies Act; "public sector companies" as defined in Section 2(36-A) of the Income Tax Act, 1961 including public sector banks; 
and/or

(b) Term Deposit Receipts upto three years issued by public sector banks Provided that the instruments covered under (iii) (a) above have an investment grade rating from at least two credit rating agencies.

(c) Collateral Borrowing 
and Lending Obligation (CBLO) issued by Clearing Corporation of India Limited and 
approved by the Reserve Bank of India.

 25% 

To be invested in any of the above three categories as decided by their Trustees. 

 30% 

5   

Shares of companies that have an investment grade debt rating from at least two credit rating agencies or in (iii) above

 Upto 5%

   The Trustees, subject to their assessment of the risk-return prospects, may invest upto 1/3rd of (iv) above, in private sector debt instruments which have an investment grade rating from at least two credit rating agencies and/or in equity-linked schemes of mutual funds regulated by the Securities and Exchange Board of India.

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    About Superannuation - Defined Benefit (DB)


What is a Defined Benefit ?

It is a corpus of benefits that is payable proportionately to the member under various modes of exit, where the contribution rate differs from year to year. The employer has an open-ended liability and the employee is not allowed to contribute to such a plan even partially.

How does one ascertain the benefits accruing under the Defined Benefits Plan?
An Actuarial Valuation is a must to ascertain the benefits accruing under the Defined Benefits Plan.

What is the Benefit receivable on Retirement on or after Normal Retirement Date in a DB scheme ?
The Benefits receivable on retirement on or after Normal Retirement Date would be ascertained as per the company's Trust Rules. However, a generic calculation to ascertain the same would be as follows:  

1/60th of Final Salary for each completed year of service subject to a maximum of "x" months is payable, subject to the member completing a minimum Pensionable Service of "y" years or if he has become of age greater than "z" 

What are the Benefits on Death or Permanent Total Disability while in service?
The Benefits on Death or Permanent Total Disability while in service would be ascertained as per the company's Trust Rules. However, a generic calculation to ascertain the same would be as follows: The beneficiary would be paid the pension relating to the actual years of service rendered, subject to the member completing the minimum Pensionable service of "x" years.

What are the Benefits on withdrawal from service?
The Benefits on withdrawal from service would be ascertained as per the company's Trust Rules. However, a generic calculation to ascertain the same would be as follows: Pension in relation to the services rendered from the normal retirement date shall become payable only if he has completed the minimum "x" years of service.

How will the pension be payable?
On the happening of any event specified above (Retirement, Death or Resignation) the trustees shall purchase a suitable annuity from LIC, which will fetch the Rule-defined pension to the member. The purchase price will be paid from the monies in the funds.

In what form is the benefit payable?
All benefits are payable in the form of Annuity.

What are the necessary conditions to be fulfilled to avail this benefit?
This is specific to the company's Trust Rules. The member needs to complete "x" years of continuous service with the company for any benefit to accrue to him or his beneficiary. This is called as the vesting period.

Does the Trust allow Transfer-Ins?
Yes, Equitable interest in previous Superannuation fund maintained during the previous employment can be transferred to another approved Superannuation fund at the request of the member in writing.

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    About Superannuation - Defined Benefit (DB)


Is Actuarial Valuation necessary in case of a Defined Contribution Plan ?

No, Actuarial Valuation not necessary in case of a Defined Contribution Plan.

What are the parameters on which the ultimate benefit is dependent on, in a DC Scheme ?
The ultimate benefit is dependent on Contribution, Accumulations and Interest thereon.

What are the advantages of a defined contribution scheme ?
The various benefits of a defined contribution schemes over the defined benefits scheme are
P       Administration Simplicity.
P       Cheaper to Administer.
P       Easier to understand.
P       Frozen Liability of Employer. 
P       Employee contribution possible.
P       No cross subsidy.


What are the conditions for membership to the Trust ?
Any employee meeting the conditions as per the eligibility rules laid down in the company's Trust Rules can be a member of the Superannuation Fund.

When will the membership cease ?
The membership in the Fund ceases after the settlement of accumulation to the member.

What are the contributions payable into the account ?
The employer shall pay to the Trustees in respect of each member, the Ordinary Annual / monthly Contributions and the Final Contribution.

What are Ordinary Annual Contributions ?
Ordinary Annual Contributions equates up to 15% of the member's salary (if Pf is applicable) but not exceeding the maximum permitted under the Income Tax Rules, 1962 and shall be payable throughout the period of his future service unless otherwise specified under the Rules.

What are Final Contributions ?
Final Contribution is payable in one lump sum, in respect of members whose services are terminated due to retirement, death, leaving service or for any other reasons. The contribution equates up to 15% of the salary received by the member during the period between the commencement of the accounting year and ending with the date of termination.

What are the Pension / Annuity Options offered by LIC in case of Cessation of employment due to death of the member ?
The Trustees will arrange to purchase the annuity option exercised by the member, in writing.

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What comprise Accumulations to the Credit of members account ?

"Accumulation" shall include an up-to-date total of all the ordinary annual contributions, the initial contribution and special contributions (if any) paid to the Fund for the member by the Company, and the equitable interest of the member transferred from another Superannuation / Pension Fund, and shall include the up-to-date total of the interest credited to such member's account during each accounting year.

When can a member claim the Accumulations credited to his account ?
The total "accumulation" lying to the credit of the employee will be paid to any member, after expressing his intention in writing, on the following occasions:

P       Cessation of Employment of member at or after the age of Superannuation.
P       Cessation of Employment of member due to Death.
P       Cessation of Employment of member due to Permanent Disablement while in 
     employment of the company. Subsequent re-employment of the member will 
     result   in re-entry as a new employee and the membership requirement as per 
     the rules will hold good for him. 
P       Cessation of Employment of member prior to attaining the age of Superannuation.

Does the Trust allow Transfer-Ins ?

Yes, Equitable interest in previous Superannuation fund maintained during the previous employment can be transferred to another approved Superannuation fund at the request of the member, in writing.


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    About Gratuity


What is a Gratuity Fund Plan ?

It is a mandatory tax-qualified, defined benefit plan paying ½ months salary for every year of service / work completed in lump sum at retirement.

What is the objective of a Gratuity Trust fund ?
To pay/meet the gratuity payments due to the employees, as and when they arise

Is Gratuity a mandatory benefit ?
Yes, every employer employing more than 10 persons must pay gratuity to his employees, on the discontinuance of service, if they have served a minimum of 5 years of continuous service (except in the case of death).

What are the different forms of compliance through which a company can offer gratuity ?
Set up an Income Tax recognized trust that can be administered internally (Self-administered Trust). 

Have a scheme with LIC, where the company mandates LIC to manage and administer the gratuity benefit. 

Opt for a scheme with a private insurance company, which will be responsible for managing the gratuity scheme.  

Which law governs the payment of Gratuity ?
The Payment of Gratuity Act, 1972 as amended from time to time.

What are the benefits payable under this Act ?
It is 15/26 * Last drawn salary * No of years of service, subject to limits specified by Income Tax which is currently Rs. 3,50,000/-.

Is it necessary to form a trust fund ?
Not necessarily, the liabilities can be met out of the current revenues of the company. This form of settling gratuity liability is called Pay As You Go (PAYG).

Why should a fund be created ?
To take advantage of the tax concession available to the company, on the contributions made into the Trust and it enable funding of gratuity liability.

Should the benefits payable be exactly equal to the payment of Gratuity Act 1972 ?
The minimum benefits should be as per the Act but a company can pay better benefits.

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How is the Past Service liability prior to the formation of the trust, funded ?
The past service liability can be funded either as a bullet payment or in five installments.

What is initial contribution ?
The initial contribution is the contribution required to fund the past service liability on the date of formation of the trust.

What is the tax treatment of initial contribution ?
Whether paid in single or multiple installments (not exceeding 5) the whole of payment will be eligible for tax relief in the year of payment.

What is ordinary annual contribution ?
Ordinary annual contribution is the liability for the current year, which is calculated actuarially.  

What is the tax treatment of ordinary annual contribution ?
According to income tax rules, not more than 8.33% of total basic salary of employees will be allowed as a deduction from the P&L account. 

Can two employers come together and operate from a single trust ?
No, each Company having a separate legal identity must have a separate fund.

What is meant by an irrevocable trust fund ?
The identity of the trust fund is separate from that of a company and the company has no right over the money available in the fund.

What are the advantages of forming a trust ?
Forming a trust creates an asset to back gratuity liability, as the amount of gratuity payable is a function of the terminal salary and the number of yrs of service put in, the gratuity liability goes on increasing year after year. It is advisable to set aside each year's liability out of the profits and gains of that year. Contributions to the trust on an annual basis enable setting aside each year’s liability against the profits and gains of that year. 

Are transfers in and out allowed ?
Though allowed, generally except among subsidiary / sister concern it is not encouraged as the burden of paying gratuity for the service period with the previous employer will shift to the new employer. The additional liability to the new employer will be difficult to determine as the gratuity payment depends on the last drawn salary.

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Are individual accounts maintained by the trustees ?

No, as the liability is that of the employer and since it depends on last drawn salary of the member, individual accounts cannot be maintained.  

Who can be the nominees ?
Nominee can be any one from the immediate family.

What does “Scheme of Insurance” with LIC mean ?
When a trust fund is formed, the trustees can either manage the fund or can hand over the fund and it's administration to LIC. LIC LIC provide Notional Death Benefit through a group insurance policy for which premium is paid by the company.

What does Notional Death Benefit mean ?
In case of death while in service, the service period is counted while calculating the gratuity as if the person has served the company up to his NRD.

What are the possible types of amendments to the rules ?
Any amendment, which scales down the already existing benefits, cannot be made.

For any amendment what types of resolution are necessary ?
For any amendment, the resolution by the Board of the company and the Trustees of the fund are necessary.

Is approval of IT necessary ?
Yes. Both at the time of formation of the trust and whenever the rules are amended

What does equitable interest transfer mean and how is the value arrived at ?
Whenever a transfer takes place, an amount is transferred by the transferee company to the transferor company which is the actuarial equivalent of the past service liability of the employee and is the equitable interest of the member in the transferee fund.

How does one go about Nomination formalities ?
A member may, by application to the Trustees, make a nomination conferring on one or more persons (stating specifically the individual share of each nominee), the right to receive the amount of gratuity in the event of his death, before the amount becomes payable, or having become payable, has not been paid.

What are the contributions payable into the account ?
The contribution payable into the members account relate to the initial contribution and the initial ordinary contribution.

In case of a self – administered trust, where should the funds of a gratuity trust be invested ?
All monies standing to the credit of the bank account to the extent not required for settlements /transfers / withdrawals etc pertaining to the members shall be invested by the Trustees in the manner prescribed by the Government of India vide Rules 101 & 67 of Income Tax Rules, 1962 from time to time. The pattern is as below: 

  

Asset / Instrument 

 Allocation 

Central Government securities as defined in Sec. 2 of the Public Debt Act, 1944 (18 of 1944); and /or units of such mutual funds which have been set up as dedicated funds for investment in Government securities and which are regulated by the Securities and Exchange Board of India;

 25% 

(a) Government securities as defined by any State Government; and/or units of such mutual funds which have been set up as dedicated funds for investment in Government securities and which are regulated by the Securities and Exchange Board of India; and/or

(b) Any other negotiable securities the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central 
Government or any State Government except those covered under (iii) (a) below

 15% 

(a) Bonds/Securities of 'Public Financial Institutions' as specified under Section 4(1) of the Companies Act; "public sector companies" as defined in Section 2(36-A) of the Income Tax Act, 1961 including public sector banks; 
and/or

(b) Term Deposit Receipts upto three years issued by public sector banks Provided that the instruments covered under (iii) (a) above have an investment grade rating from at least two credit rating agencies.

(c) Collateral Borrowing 
and Lending Obligation (CBLO) issued by Clearing Corporation of India Limited and 
approved by the Reserve Bank of India.

 25% 

To be invested in any of the above three categories as decided by their Trustees. 

 30% 

5   

Shares of companies that have an investment grade debt rating from at least two credit rating agencies or in (iii) above

 Upto 5%

   The Trustees, subject to their assessment of the risk-return prospects, may invest upto 1/3rd of (iv) above, in private sector debt instruments which have an investment grade rating from at least two credit rating agencies and/or in equity-linked schemes of mutual funds regulated by the Securities and Exchange Board of India.  

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