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Telephone: 011-26178343

EMPLOYEES’ PROVIDENT FUND ORGANISATION

(Ministry of Labour, Govt. of India)
Head Office, Bhavishya Nidhi Bhawan,
14-Bhikaiji Cama Place, New Delhi – 110 066

No.C-II/Misc./2/06/x/EZ/65314-65429 Dated the: 20 NOV 2006

To
All Addl. Central P.F Commissioners(Zones)
All Regional P.F Commissioners (Regions)
All Regional P.F Commissioner s-II/ Officer Incharge,SROs

Sir,

Please refer to this office letter no. C-II/Misc./2/06/x/EZ/46390-46425dated

27th September 2006 wherein the impact of the amendment to Income Tax Rules
brought out by the Finance Act, 2006 was communicated to the field offices
alongwith specific directions to dispose of the applications for grant of exemption
pending with the Regions expeditiously. As this is an opportunity available to EPFO
to regulate all the hitherto excluded PF Trusts, it is imperative that the opportunity for
growth in extending service to all excluded Trust funds is seized and the field offices
handle the application for coverage and exemption with sensitivity and firm
commitment.

2. The CBT in its 176th meting has approved progressive changes in processing
the grant of exemption so as to facilitate the field offices to expeditiously dispose of
the applications seeking exemption under Section 17 of the Act. The major changes
approved are:

i. Simplification of model rules and conditions for grant of exemption.

ii. Shift from the position of discouraging exemption to a positive stand of

encouraging exemption.
iii. Thorough scrutiny of exemption proposals at field level. At Head Office
checks of defined critical points so as to avoid duplication of work and
consequent delay.

iv. Accepting certification by Chartered Company Secretary, Actuary and

Chartered Accountant regarding the comparison of benefits.

v. Time bound plan for processing of exemption proposals.

vi. Regular compliance audit of the exempted establishments especially of the

fiduciary role of the trust.

vii. Adoption of uniform format of reporting (including accounting standard,

methods of valuation etc.) by all exempted trusts countrywide.
viii. Single window clearance system for grant of exemption to establishments
having ‘recognized’ provident funds.

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 ix. Exemption from Employees’ Pension Scheme, 1995 to establishments
running pension schemes with benefits equal to or better than that available
under the Central/State Government.

Modalities on implementing the decision of 2(iv) (vi) and (vii) will be communicated
separately. Rest of the decisions shall be implemented strictly following the
guidelines below:

3. The Board has also approved the following changes in the procedure for
scrutinizing the applications.

”Considering the difficulty experienced by the majority of industrial houses

in furnishing written consent of employees spread across different
locations, the procedure for obtaining the consent of the employees stand
modified. The employer shall display a notice stating the intention of
obtaining exemption under section 17(1)A of the Act Para 27A of the
Scheme to establish an exempted PF trust and calling for objections within
30 days of posting such notice on the notice board in the Head office of
the establishment and its branches. In addition, notice should also be
posted on the website of the establishment and mail the notice to the e-
mail ID of all the employees if available. A certificate of confirmation for
having published the notice as well as posting it in the website and e-
mailing to the employees, as the case may be shall be filed by the
establishment. If no objection is received from the majority of the
employees within the reasonable time of 30 days of publishing the notice,
the establishment and the Board of Trustees shall certify this position and
it will be recorded as deemed consent of the majority of the employees”.

4. The conditions to be satisfied by the establishment seeking exemption has

been categorised into

(a) Essential conditions for grant of exemption.

(b) Conditions which are required to be satisfied after grant of exemption.

The essential conditions to be followed while processing the applications and

conditions which are required to be satisfied after grant of exemption shall be
scrutinized separately. The essential requirements for considering the proposals
are:
i. Application for exemption duly signed by the employer and addressed
to the Appropriate Government.

ii. Three copies of PF Trust Rules duly signed by all the trustees
indicating their status in the Trust.
iii. Certificates of undertakings by the employer to abide by the Condition
No.22 and Condition No.23 of appendix ‘A’ to Para 27AA as per
prescribed proforma.

iv. Comparison of benefits under the PF Trust Rules vis-à-vis the benefits
available under the EPF Scheme, 1952 in the prescribed proforma.
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 v. Names and addresses of all the members of the Board of Trustees.

vi. Information regarding enrollment and compliance of employees

employed by or through the contractor in or in connection with the work
of establishment, if any, alongwith the names of the contractors and
their PF Code Nos, if the contractors are having independent No

vii. Certificate from professional mentioned at Para 2(iv)

In addition, the following check points and mandatory requirements shall be verified
and certified by the RC recommending the grant of exemption. The RPFC shall also
forward alongwith all the proposal a certificate as reproduced below confirming these
mandatory requirements.

“Certified that the book of accounts of the establishment and the Trust Fund are
subjected to compliance audit and it is certified that:

a) The establishment has published the notice and Trust Rules

declaring the intention of establishment to create a exempted
trust fund and have also posted the notice in the website inviting
objections from the employees. As objections are not received
from any/majority of the employees, it is therefore implied that
majority of the employees are consenting to the proposal to
obtain grant of exemption from EPF Scheme, 1952.

b) The number of trustees representing the employer and

employees are each which is within the permitted limit under
para 79C of the EPF Scheme.

c) The rate of contribution are not less favorable than that

specified under section 6 of the EPF & MP Act, 1952

d) All the employees are in enjoyment of PF benefits on the whole

not less favourable than the benefits available under the EPF
Scheme, 1952 or any scheme in relation to the employees in
any of the establishment of a similar character.

e) the establishments has enrolled all the eligible employees

including employees employed by or through contractor in or in
connection with the work of the estts., the employees engaged
through contractors who have been covered separately as
independent establishment have also been enrolled.(strike out
whichever is not applicable)

f) The compliance in respect of branches of the establishment and

the employment strength of each Branch is verified.

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 g) The establishment has been enjoying relaxation/deemd
exemption for the period from to
and the investment by the trust during the period of
enjoyment of relaxation/deemed exemption is as per the pattern
of investment prescribed from time to time and the sanctions are
held strictly as per the guidelines issued.

The establishment has though by and large maintained the

pattern of investment. However these exist deviation to the
extent given below
. (Strike out whichever is not applicable)

h) Proper records of withdrawals, transfers etc. are maintained by

the Trustees.
i) Monthly returns are submitted regularly and the return upto ------
--------------- is received and scrutinized and the compliance is in
order.

j) The Board of Trustees is established under the chairmanship of

the employer.

k) Trustees are maintaining the accounts electronically and the

members are able to see their account balance from the
computer terminals. The employer has undertaken to maintain
the accounts electronically and to make available the
individual balance each of the employees electronically.(strike
out whichever is not applicable)

l) The Board of trustees have furnished an undertaking to abide

by para 22 and 23, Para 27AA of the EPF Scheme, the copy of
which is enclosed.

m) The accounts of the trustees as well as the establishments is

being periodically inspected by a team of officers headed by
APFCs to ensure that the establishment comply with all the
conditions for grant of exemption and the trust handle the funds
effectively and efficiently.

The establishment has remitted the inspection charges and the

contribution due in respect of Employees Pension Scheme and
EDLI Scheme as the case may be. The compliance status on
the remittance of statutory dues against all the three schemes
are made upto the month certified below.

The establishments is maintaining trust funds since______________ and

certified that the accounts of the Trust fund is regularly audited by a Chartered
Accountant and the balance sheet from ___________ to ____________is received
and scrutinized and the maintenance of the trust funds is proper and confers to the
accounting principles so as to reflect true and correct status of the assets and
liabilities of the Trust.

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5. Consequent on the approval of the above revised procedure by the Central
Board of Trustees henceforth all application received in the SROs headed by RPFC-
II shall be directly forwarded to Head Office with appropriate certification and
recommendation by the RPFC-II, incharge of the Office. The proposal received in
the offices headed by APFC and Reginal Office shall continue to be forwarded
through Regional Offices with the recommendation of RC-I, Incharge of the region.

6. It is also decided that the comparison of the benefits available under the
proposed rules vis-à-vis the statutory Schemes are done strictly by adhering to the
requirement of Section 17 of the Act which specifically state that the exemption is
permissible when the establishment proposed to provide benefits on the whole not
less favourable to the employees than the benefits available to them under the EPF
Scheme. Considering this position, it is sufficient that if the RPFC confirm that the
Trust rules satisfy the requirements of the parameters provided in the Act and
adoption model rules verbatim is not to be insisted. It is reiterated that:

a) The comparison of the Rules shall be made on the whole and

specifically with reference to the benefits namely the rate of
contribution and the benefits available to the employees, model
rules satisfy the requirements.

b) The proposed rules should also provide necessary and

adequate mechanism to ensure that the management of the
funds by the Trustees are transparent, prudent and fiduciary
responsibilities of the Trustees are clearly spelt out.

7. It is also found that in almost all the proposals recommended by the

Regions for grant of exemption under Para 27A, the definition of employees is
identical to the definition under Section 2(f) of the EPF Scheme. It needs to be
noted that once the establishment is seeking exemption under Para 27A defining the
employees as stated in the EPF Scheme tantamount to keeping the membership
open to all the employees, both directly and indirectly employed and therefore
proposal do not fall under the category of exemption under Para 27A. In all the
cases where the exemption is sought under Para 27A definition of employees in the
Trust rules should be restricted to the definition as applicable to the class of
employees. In order to ensure that proper administration of the trust is monitored by
the EPFO, it is also decided that henceforth the definition of class of employees
need to be got defined as all the employees directly employed by the establishment.
In all such cases the definition of the employees be got incorporated as

“employees borne on the rolls of the establishments who are directly

employed for wages, manual or otherwise in connection with the work of the
establishment”
The exclusion being the employees indirectly employed, through contractors
and outsourcing”.

It should also be made clear to the establishment that even after obtaining
exemption under Para 27A of the EPF Scheme the responsibility for compliance in
respect of employees employer indirectly, either through contractor or outsourcing,
lies squarely with the principal employer and even in respect of all default committed

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by the contractors who are enrolled separately or independently the principal
employer is liable for all consequences.

8, Review of the proposal received in Head Office had revealed that there exist
substantial interval period between the date of coverage and the date from which
exemption is sought and recommended and the date on which rules are approved.
In majority of the cases right from the date of coverage the establishment is
maintaining the Trust and the contributions are transferred to Trust only. Even in
such cases without attempting regularization of the period for which the contributions
are not received in the respective field offices, proposal are recommended for
issuing notification granting exemption from a prospective date. It is needless to say
that in all cases wherein the establishment did not comply with as an unexempted
establishment we are required to either regularize the exemption status enjoyed or
impose the consequences of not complying with RPFC as an unexempted
establishment. It need to be appreciated that all cases wherein the Trust was being
administered and the compliance by the establishment in transferring the
contributions to the Trust and the management of the fund including investment of
the corpus was proper, treating such units as unexempted unit will have the
consequence of imposing the penal provisions of the EPF Act and the Schemes. No
doubt, the law requires that, an establishments until such time it is notified for
permitting exemption or until such time it is permitted to maintain the Trust by orders
issued under Para 79, is required to file compliance with the respective field offices.
It may also be recalled that vide circular letter No.E.III/Misc./2000 dated 24.5.2000,
we have permitted establishments to enjoy a deemed exemption status and this
facility was later withdrawn vide letter of even no. dated 3.8.2000. However, no
steps were taken by the RPFCs to take over the Trust funds and obtain compliance
as unexempted units from these units considering the fact that we are having large
number of establishment which were not complying as unexempted establishments
and continued to enjoy the status of deemed exemption and was maintaining the
Trust funds, steps shall immediately be taken to regularise such Trusts by
permitting exemption from the respective date from which the establishment has
managed the Trusts, either from the date of coverage or thereafter. The RPFC,
Incharge of the Region shall immediately review all such cases and confirm the
status of each of the pending cases and make specific recommendation for
regularizing such compliance from the date from which exemption is sought.

9. There are also instances wherein prior to recommendation by the

RPFC for grant of exemption, the Trust had violated the mandatory conditions.
Once the RC has confirmed that the trustees of the establishment had corrected the
situation and also made good deficiencies which have been pointed out by the RC,
such cases be considered on individual merits and appropriate recommendation
made to Head Office. While examining such casers, RPFC shall confirm the
following requirements: .

(a) The RPFC shall specifically state and certify as to whether he has verified
the accounts of the establishment during the period for which the
establishment has maintained the Trust funds before the date of
recommendation and the violations noticed was rectified. The cases
which failed to rectify the violations should be recommended for rejection
of request for grant of exemption and the funds should be taken over by
the RC. Logically liability for all the consequences of non compliance by
establishment as an unexempted unit will have to follow. This may
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 however be invoked only in cases wherein violation could not be rectified
and made good by the employers.

(b) Henceforth RPFC shall not permit deemed exemption to any

establishment and shall incorporate a specific direction in the coverage
memo so that in case any establishment, on their own, continue to
maintain the trust funds disregarding the instructions to comply as an
unexempted establishment and apply for exemption, the period between
the date of coverage and date of grant of exemption will be considered as
a default and the consequences of such default would follow. Such
instruction will act as an deterrent to the establishment to commence
compliance and not to rely on the tacit acceptance of compliance as an
exempted establishment, by omission.

“On coverage, it is mandatory on the part of your company/establishment

to render compliance with the RPFC. In case your establishment desires
to avail provisions of Section17 of the Act to obtain exemption from any of
the statutory Schemes, such exemption will be available only from a
prospective date and failure by the establishment to render compliance
with the RPFC until the date of notification of such exemption will entail
the establishment liable for all penal consequences as provided for under
section 7A. 8.14 and 14B of the Act read with related provisions of the
Schemes for default.”

10. It is also reiterated that the possible surge of application expected from the
hitherto excluded trust to obtain exemption under Section 17/Para 27A provides an
opportunity to the Orgnaisation in regulating all the PF Trust in the country. The
Field office should therefore gear up their activities to meet this challenge and
demanding situation with total accountability and ensuring that the accountability
percolates down the line. The deadline for obtaining exemption notified being, is
31.3.2007, the Zonal ACCs and RC-I Incharge of the Regions shall draw action plan
for each of the office under their charge after assessing ground reality and estimated
number of establishment likely to apply for obtaining exemption. The zonal ACC
shall monitor the implementation of these instructions and ensure that all the cases
which are pending in the respective offices under their charge are forwarded to Head
Office within 15 days of the proposals are received in the field offices.

Yours faithfully,
Sd/-
( N.A. NAIR)
REGIOAL P.F. COMMISSIONER (EXEMPTION)
FOR CENTRAL P.F. COMMISSIONER

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