Mentoassociates.com – Legal Articles

INTRODUCTION: The Employees’ Provident Fund (EPF) was established with the objective of safeguarding the financial welfare of employees in both the private and public sectors. It functions as a long-term savings mechanism, accumulating contributions throughout an employee’s tenure with an organization. The primary purpose of the EPF is to manage and secure retirement benefits for employees by ensuring a steady source of income after their service ends. The scheme is governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. To remain compliant with EPF regulations, employers must adhere to a range of statutory requirements and due diligence measures. Failure to comply may attract penalties, as outlined in the following sections.

1. False Statements to Avoid EPF Payments- [Section 14(1)]: If any person knowingly makes a false statement to avoid EPF payments he is liable to punishment of jail up to 1 year, or fine up to ?5,000, or both

2. Default in Depositing EPF Contributions- [Section 14(1A)]: If an employer fails to deposit employee contributions deducted from salaries, or pay administrative/inspection charges, he is liable to minimum 1 year imprisonment + ?10,000 fine, if employees’ deducted contributions are not deposited or minimum 6 months imprisonment + ?5,000 fine in other cases. Courts can reduce the jail term for valid and recorded special reasons.

3. Default in Insurance Fund or Inspection Charges – [Section 14(1B)]: On failure to pay insurance-related contributions or inspection charges, punishment includes jail from   6 months to 1 year and fine up to ?5,000. Court may reduce jail term with valid justification.

4. Other Violations Under EPF/Pension/Insurance Scheme – [Section 14(2)]: For any other non-compliance punishment is jail up to 1 year fine up to ?4,000 or both.

5. Breach of Exemption Conditions – [Section 14(2A)] : If an employer violates conditions of exemption granted under section 17, the punishment will be jail from 1 to 6 months and fine up to ?5,000

6. Offences Committed by Companies- [Section 14A]: When a company violates EPF laws, every person responsible for running the company (directors, managers, etc.) may be held liable. They can escape liability only if they prove lack of knowledge or due diligence. If the offence happened due to the consent or neglect of a specific officer, they will be held responsible.

7. Repeat Offenders – [Section 14AA]: If an individual or company repeats the same offence after a conviction, then the punishment will be jail for 2 to 5 years and fine of ?25,000

8. Cognizable Offence – [Section 14AB]: Failure to pay EPF contributions is treated as a cognizable offence, meaning the police can arrest without a warrant.

9. Legal Procedure for Prosecution – [Section 14AC]: – Legal action can begin only with a written report by an EPF Inspector, with prior approval from the Central PF Commissioner or an authorised officer. Only courts with the rank of Presidency Magistrate or First-Class Magistrate can try EPF offences.

10. Recovery of Penalty – Damages – [Section 14B]: For default in payments, the EPF Commissioner can impose penalty damages (up to the amount of arrears).Employers will be given a fair chance to be heard. In case of sick companies under rehabilitation, damages can be waived or reduced.

11. Court-Ordered Payment Deadlines – [Section 14C]: If convicted, courts can direct employers to make the payment or transfer the pending amount within a time limit. If not complied with, it will be treated as a new offence, punishable under Section 14. An additional fine of ?100 per day can also be imposed for continued delay.

CONCLUSION:

The EPF Act imposes strict penalties for employers who fail to meet their legal responsibilities. Non-compliance—whether by delay, default, or dishonesty—can attract serious consequences, including imprisonment and financial penalties. Employers are advised to ensure timely contributions, maintain proper records, and follow due process to stay compliant and avoid legal trouble.

Provident Fund is a fund, plan or scheme to provide retirement income. The Employment Provident Fund and Miscellaneous Provisions Act 1952 and the rules there under provide for the law on Provident Fund and pension benefits. The Act was enacted with a view to provide for compulsory contribution to provident fund, both by the employer and the employee.
It applies to every establishment which is a factory engaged in any industry specified in Schedule-I of the act and in which 20 or more persons are employed. The Central Government by notification can bring in any other establishments employing 20 or more persons or less than 20 persons under the purview of this act. The appropriate government may by notification in official gazette exempt any establishment from the operation of all or any of the provision of any scheme under this act.
An employee, to become eligible to the provisions of the Act is required to be a member, by filing the Form 2. Under the scheme of PF the employer and employee will each contribute 10% or 12% of the basic salary towards the PF. The remittance of the same should be done on or before the 15th of the following month. Accordingly the monthly returns have to be filed before the 25th of every month by filling the Forms 12A, 5 and 10. Annual returns are also to be filed by the employer under Form 3A and Form 6A.
The PF amount is also transferable when the employee upon termination / resignation, joins the services of another employer. The same is done by filling the Form 13, which will be provided by the former employer. Upon the form being filled, the new employer shall forward it to the provident fund organization. The transfer of the PF amount ordinarily takes 40 days.
A member is eligible to apply for withdrawing his provident fund and pension fund only after 2 months from the date of resignation, provided that he / she is not employed during the said 2 months. The member should submit Form 19 to withdraw his provident fund dues on leaving service/retirement/termination. The same has to be signed by the previous employer and submitted to the provident fund office. Ordinarily it takes about 40 days for the PF amount to be credited to the bank account. The withdrawal of PF is not taxable provided the employee has rendered continuous services; else the applicable tax slab for the income would apply.
Members are also entitled to withdraw monies from as advances from the PF account for purposes like marriage, education, medical treatment, purchase of residential property etc.
Contributed by:
Naqsha Biliangady
Advocate