The Hindu Business Line : Huff and puff over PF

What the proposed amendment seeks to do is compel the exempted establishments take specific approval of the State government at the pain of employers' Provident Fund contribution going abegging.

Sections of the corporate sector that have plumped for their own private trusts for managing their own as well as their employees' provident fund contributions are perturbed by the proposed move to align the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (PF Act) with those of the Income-tax Act, 1961 (the I-T Act).

As it is, the PF Act applies to employees drawing a basic salary of not more than Rs 6,500 per month. In other words, higher paid employees are not governed by the PF Act. The I-T Act — vide its Fourth Schedule, more specifically rule 4 thereof — lays down the ground rules for getting the approval of the Commissioner of Income-Tax. Fulfilment of these conditions is sine qua non for making the grade when it comes to allowing of employer's contribution to PF as business expenditure.

If the conditions are not fulfilled, such contributions would fall by the wayside. A new condition (ea) is sought to be added to Rule 4 with effect from April 1, 2007, which for good measure says employers' contribution in case of employees governed by the PF Act — whose basic salary does not exceed Rs 6,500 per month — would fall by the wayside if the employer has not been granted exemption by the State government concerned from operation of the PF scheme with the PF Commissioner.

The corporate sector need not lose sleep over this because the proposed amendment is trite; instead of putting the corporate sector on notice, it should have been subjected to a regime of retrospective disallowance in case the employers had blithely not taken State government approval under Section 17 of the PF Act for operating their own schemes.

The State government is supposed to allow private schemes only if they offer terms at least on a par with those under the PF Act. For example, if the PF Act mandates a 10 per cent matching contribution by the employer and employee, the private trust created by the employer can offer mandate 11 per cent to make the grade.

Implications

What the proposed amendment seeks to do is compel the exempted establishments take specific approval of the State government at the pain of employers' contribution going abegging. Before the amendment, such contributions were making the grade irrespective of whether specific State government approval was obtained or not. One fails to understand why the corporate sector is so incensed over this perfectly justified provision whose applicability is axiomatic so much so that it should have held sway even when the I-T rule did not say so in so many words what it proposes to say now.

Safeguarding whose interests?

At any rate, contributions to the accounts of high-paid employees — employees whose basic salary is not more than Rs 6,500 per month — did not and would not require State government approval under the PF Act. In other words, the proposed amendment only seeks to safeguard the interests of low-paid employees.

It is for the Government to mull over whether the regime of dual approval for low-paid employees — once by the State government and again by the Chief Commissioner of Income-tax — should be there. There is no reason why the much-touted single-window norm for governmental approvals should not be practised with regard to contributions to retirement benefit funds.

(The author is a Delhi-based chartered accountant.)

S. Murlidharan

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